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Australian dollar remains tepid after weak Chinese CPI inflation

  • The Australian Dollar weakens while the US Dollar gains ground following Fed Chair Powell’s testimony before the US Congress on Tuesday.
  • China’s CPI fell 0.2% in June, compared with a 0.1% drop in May.
  • Fed Chair Powell stressed that a rate cut is not appropriate until the Fed gains confidence that inflation is headed toward 2%.

The Australian Dollar (AUD) is shedding recent gains on Wednesday. The AUD/USD pair’s decline is due to the strengthening of the US Dollar (USD) following Federal Reserve (Fed) Chairman Jerome Powell’s testimony before the US Congress on Tuesday. Despite acknowledging the improvement in inflation figures, the Fed remains firmly cautious.

China’s Consumer Price Index (CPI) rose at an annual rate of 0.2% in June, compared with a 0.3% increase in May. The market had forecast a 0.4% increase for the period. On a monthly basis, Chinese CPI inflation fell 0.2% in June, compared with a 0.1% drop in May, which was below the expected 0.1% decline.

Traders are anticipating Fed Chair Jerome Powell’s second semi-annual testimony, as well as speeches by Fed Chair Michelle Bowman and Austan Goolsbee. In addition, attention will be focused on US Consumer Price Index (CPI) data, due out on Thursday.

Market forecasts generally predict that the annualized US core CPI for the year ending June will remain stable at 3.4%, while headline CPI inflation is expected to rise to 0.1% month-on-month in June, compared with the previous flat reading of 0.0%.

Daily Market Wrap: Australian Dollar Falls on Fed’s Powell’s Harsh Comments

  • Fed Chairman Jerome Powell answered questions before the Senate Banking Committee on the first day of his testimony before Congress on Tuesday. Powell stated, “More good data would strengthen our confidence in inflation.” He emphasized that “a rate cut is not appropriate until the Fed gains greater confidence that inflation is sustainably headed toward 2%.” He also noted that “first quarter data did not support the increased confidence in the path of inflation that the Fed needs to cut rates.”
  • Australian 10-year government bond yields are holding steady around 4.4% as investors digest mixed domestic data. Consumer confidence fell in July after rising in June, reflecting household concerns about persistent inflation and the possibility of further interest rate hikes by the Reserve Bank of Australia (RBA). Meanwhile, business confidence rose to its highest level since January 2023.
  • Westpac consumer confidence in Australia fell 1.1% in July, reversing the 1.7% rise seen in June. This marks the fifth decline in 2024, driven by continued concerns about high inflation, elevated interest rates and a sluggish economy.
  • US Nonfarm Payrolls (NFP) rose by 206,000 in June, following a rise of 218,000 in May. This figure exceeded the market expectation of 190,000.
  • The US unemployment rate rose to 4.1% in June from 4.0% in May. Meanwhile, average hourly earnings declined to 3.9% year-over-year in June from the previous reading of 4.1%, in line with market expectations.

Technical Analysis: Australian Dollar hovers around 0.6750

The Australian dollar is trading around 0.6740 on Wednesday. The daily chart analysis shows that the AUD/USD pair is consolidating within an ascending channel, which indicates a bullish bias. Moreover, the 14-day Relative Strength Index (RSI) is holding above the 50 level, confirming the bullish momentum.

The AUD/USD pair could test the upper boundary of the ascending channel at around 0.6775. If it breaks this level, the pair could aim for the psychological level of 0.6800.

On the downside, the AUD/USD pair could find support around the lower boundary of the ascending channel at 0.6670, with additional support near the 50-day exponential moving average (EMA) at 0.6642. A break below this level could push the pair towards the retracement support around 0.6590.

AUD/USD: Daily Chart

Australian Dollar PRICE Today

The table below shows the Australian Dollar (AUD) exchange rate against major currencies today. The Australian Dollar was the weakest currency against the New Zealand Dollar.

USD 0.00% -0.02% 0.13% -0.03% 0.05% -0.04% 0.06%
EUR -0.01% -0.01% 0.14% 0.01% 0.03% -0.07% 0.04%
GBP 0.02% 0.01% 0.14% 0.01% 0.04% -0.05% 0.04%
JPY -0.13% -0.14% -0.14% -0.14% -0.10% -0.23% -0.12%
CAD 0.03% -0.01% -0.01% 0.14% 0.07% -0.04% 0.04%
AUD -0.05% -0.03% -0.04% 0.10% -0.07% -0.11% -0.02%
NZD 0.04% 0.07% 0.05% 0.23% 0.04% 0.11% 0.09%
CHF -0.06% -0.04% -0.04% 0.12% -0.04% 0.02% -0.09%

The heatmap shows percentage changes of major currencies. The base currency is selected from the left column, while the quote currency is selected from the top row. For example, if you choose the Australian Dollar from the left column and move along the horizontal line to the US Dollar, the percentage change shown in the chart will represent the AUD (base)/USD (quote).

Interest Rates FAQs

Financial institutions charge interest rates on loans to borrowers and pay them out as interest to savers and depositors. These are influenced by base interest rates, which are set by central banks based on economic developments. Central banks are typically mandated to ensure price stability, which in most cases means targeting an underlying inflation rate of around 2%.
If inflation falls below target, the central bank can cut base interest rates, in order to stimulate lending and boost the economy. If inflation rises substantially above 2%, the central bank typically raises base lending rates to try to reduce inflation.

In general, higher interest rates help strengthen a country’s currency by making it a more attractive place for global investors to park their money.

Higher interest rates influence the price of Gold because they increase the opportunity cost of holding Gold rather than investing in an interest-bearing asset or depositing cash in the bank.
If interest rates are high, the price of the US Dollar (USD) usually rises and since Gold is priced in dollars, the price of Gold falls.

The federal funds rate is the overnight rate at which U.S. banks lend to each other. It is the official interest rate typically set by the Federal Reserve at its FOMC meetings. It is set within a range, for example 4.75%-5.00%, although the upper limit (in this case 5.00%) is the figure quoted.
Market expectations for the Federal Reserve funds rate are tracked by the CME’s FedWatch tool, which measures the behavior of many financial markets in anticipation of future Federal Reserve monetary policy decisions.

Source: Fx Street

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