AUD/USD Cautious After New Jump in Australian Inflation

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AUD/USD Analysis

Australia's Headline Consumer Price Index (CPI) accelerated 6.1% year-over-year in the second quarter of 2022, from 5.1% prior. This was marginally below expectations, but marked the highest level in the series and in two decades.

Trimmed mean CPI, which excludes large price rises and falls, rose 4.7% year-over-year, from 3.7% in Q1, in the highest print since the start of the series in 2003.

In order to combat surging inflation, the Reserve Bank of Australia (RBA) has been tightening its monetary policy this year, having already delivered 125 basis points worth of rate hikes. This has brought rates to the highest level since 2019 at 1.35%, after this month's 0.5% move.

The central bank meats again next week and the Board expects "to take further steps in the process of normalizing monetary conditions in Australia over the months ahead" [1], meaning that another rate increase is probably in the cards.

AUD/USD reacted lower to the CPI release, since it missed estimates and trades with caution, as markets brace for today's Fed rate decision, which will likely determine its next leg and has the potential to spur volatility.

The US central bank has hinted towards 0.5-0.75% rate hike and will likely reiterate its resolve to fight inflation, while markets will be awaiting for any guidance in regards to its intentions for the September meeting.

The Aussie had dropped to two-year lows earlier in the month but staged a notable recovery last week, as expectations around the Fed cooled down, but the advance stalls this week.

The Relative Strength Index (RSI) has been diverging lower and this creates risk for a decline towards 0.6867-59, although a steeper drop to 0.6756 that would bring 0.6647 would need a catalyst.

On the other hand, AUD/USD tries to defend the EMA200 (black line), which will keep it on track for fresh highs that would allow it to look towards mid-0.7000s, although a Fed disappointment will likely be needed for such a move and further advance that could challenge the DMA200 (0.7150).

Nikos Tzabouras

Senior Market Specialist

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 07 Aug 2022 https://www.rba.gov.au/media-releases/2022/mr-22-20.html

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