- AUD/USD dipped from multi-week highs around 0.7031 and fell on risk aversion momentum in FX markets.
- The Fed’s Bostic said the Fed needs to do more in terms of interest rates, while saying the US is not in a recession.
- The Fed’s favorite inflation gauge gives the green light for another rate hike.
AUD falls against the greenback, after hitting a daily high of 0.7031, but higher-than-estimated US inflation figures triggered a U-turn in the forex space, with peers of refuge leading the group. At the time of writing this report, the AUD/USD trades at 0.6976.
AUD/USD falls on risk-on FX markets after high PCE reading
AUD/USD is trading below its opening price as investors reassess the Fed’s decision. On Wednesday, the bulls were everywhere, with global stocks rising as if the Federal Reserve paused or cut rates. types. In effect, the Fed acknowledged that output and spending had “softened,” but did not signal that it was going to pause.
Indeed, on Friday, Atlanta Fed President Raphael Bostic said he is convinced the Fed “is going to have to do more in terms of interest rate moves.” Bostic said he doesn’t think the country is in a recession, after Thursday’s advanced second-quarter GDP was weaker than estimated at -0.9%.
Meanwhile, previously released US inflation figures reinforced Bostic’s claim. Personal Consumption Expenditure (PCE), the Fed’s favorite gauge of inflation, rose 1% mom and 6.8% yoy versus estimates of 6.7%. Core PCE, which strips out volatile items, increased from 4.7% expected to 4.8% y/y.
Therefore, AUD/USD’s reaction to the headline pushed the pair towards its daily low at 0.6911, 100 pips from its highs, although it has bounced back and is getting closer to its opening price. Meanwhile, the US Dollar Index remains negative on the day, down 0.13% to 106.074.
Meanwhile, US President Joe Biden and his counterpart Chinese President Xi Jinping held a face-to-face meeting and led follow-up teams. There was no talk of lifting tariffs on Chinese goods, as they were focused on Taiwan.
Another reason that would limit AUD/USD’s gains is that China’s foreign trade faces higher risks, according to China’s Ministry of Commerce. He added that trade growth in the second half is not optimistic.
Earlier in the Asian session, Australia released the second-quarter Producer Price Index in its annual reading, rising 5.6%, up from the 4.9% estimate, giving enough ammunition to the Reserve Bank of Australia. to keep raising rates.
What to watch out for
Next week, the US economic docket will include the S&P Global and ISM manufacturing PMIs for July in its final reading. In the Australian calendar will be known the decision on the interest rates of the Reserve Bank of Australia (RBA), where the bank is expected to rise 50 basis points, from 1.35% to 1.85%.
AUD/USD Key Technical Levels
Source: Fx Street
With 6 years of experience, I bring to the table captivating and informative writing in the world news category. My expertise covers a range of industries, including tourism, technology, forex and stocks. From brief social media posts to in-depth articles, I am dedicated to creating compelling content for various platforms.
