- Risk aversion was no excuse for AUD/USD to rise, but remains negative on the week.
- Inflation in the US exceeds 9%, for the first time since 1981; the odds of the Fed raising 100 basis points stand at 84%.
- The US 2yr-10yr yield curve inverted the most since 2001; Is the recession just around the corner?
- Surveys of Australian consumer and business confidence show that pessimism is rising among Australians.
AUD found bids during the American session and is up 0.33% on Wednesday after a report from the US Department of Labor showed US inflation revisiting new 40-year highs amid sentiment mixed market, as shown by the fluctuations in US equities, but on the verge of turning negative.
Investor sentiment is mixed; US 2yr-10yr yield curve signals recession
AUD/USD is trading at 0.6776, after a volatile session in which the pair fell towards the daily low of 0.6725, followed by a brief rally above 0.6800, to settle around the current level.
During the American session, the US Bureau of Labor Statistics (BLS) reported that June inflation in the US reached 9.1% year-on-year, the highest reading since 1981, surpassing the previous reading of 8.6%. At the same time, inflation that excludes volatile items such as food and energy, the so-called core CPI, rose 5.9% year-on-year, down from 6% in May but above expectations of 5.7%, reinforcing further the arguments in favor of the Fed’s rate hike of 75 basis points.
Meanwhile, STIR money market futures have started pricing in an 84% chance of a 100 basis point hike by the Federal Reserve, while fully pricing in a 75 basis point hike.
During the session, it is worth noting that the US 2yr-10yr yield curve has touched levels last seen in late 2001, currently standing at -0.225%, while the 3yr 10-month US slumps more than 30 basis points to 0.528%, signaling investors’ recession fears are rising.
As for the Australian economy, last Monday’s business confidence showed business becoming more pessimistic, falling to its lowest level in six months. Despite the poor reading, the report revealed some positives regarding capacity utilization and future orders. As for Australian consumer confidence, last week it fell by 2.5%.
What to watch out for
The Australian economic calendar will include reports on employment and consumer inflation expectations. Australia’s employment change for June is expected to be 30,000, down from 60,000 in May, while consumer inflation expectations are seen at 6.8%, higher than the previous reading. On the other hand, the US economic calendar will publish the initial applications for unemployment benefits, the inflation of producers, and the spokesmen of the Fed will update the state of the battered US economy, with inflation above 9 %.
AUD/USD Key Technical Levels
Source: Fx Street
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