- The Australian dollar remains lower and traded within a tight range.
- Investors are bracing for the US consumer price index for July.
- Better-than-expected Australian business confidence data limited downward pressures.
The AUD/USD pulls back from weekly highs but trades in choppy trading range as investors brace for US inflation report. This coupled with geopolitical wrangling between China and Taiwan following House Speaker’s visit of Representatives, Pelosi, and expectations of further Fed tightening weighed on sentiment.
At the time of writing, the AUD/USD is trading at 0.6965, below its opening price, after hitting a daily high of 0.6994. However, the failure of the buyers to break through the 0.7000 level exposed the major to selling pressure.
AUD/USD falls on risk aversion
EU and US stocks post losses. Last Friday’s strong US employment report fueled expectations of a 75 basis point Federal Reserve interest rate hike, which could come if confirmed by inflation data. Headline inflation estimates stand at 8.7% year-on-year, down from 9% in June. The so-called core CPI, which excludes volatile items such as food and energy, is forecast at 6.1% year-on-year, down one point from June’s 6.2%.
However, the dollar has failed to take advantage of risk aversion. The dollar index, which measures the value of the dollar against a basket of currencies, stands at 106.189, down 0.18%. By contrast, US bond yields are rising ahead of the US inflation report.
The Australian dollar remains buoyed by a better-than-expected Chinese export report. This, coupled with rising iron ore prices, prevented AUD/USD from suffering further losses. Meanwhile, NAB Australian Business Confidence rebounded in July, buoyed by sales and earnings. However, companies reported increased purchasing and labor costs.
Geopolitics could hurt AUD/USD. As China’s military drills have dragged on beyond their scheduled date and into international waters, the risks surrounding Taiwan are keeping investors uneasy. Further rally could be positive for the US dollar and negative for the Australian dollar.
What to watch out for
Data on private housing approvals and building permits will be released on the Australian economic calendar. In the US, the inflation readings, along with the Fed’s continued speech after the US CPI, will shed some light on the Fed’s next move.
AUD/USD Key Technical Levels
Source: Fx Street
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