The Australian Dollar (AUD) continued to strengthen against the USD, reaching its highest level since January near 0.6800. Despite hot PPI data in the US, the AUD’s upward trend persisted. This is largely due to the monetary policy divergence between the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed), with the RBA expected to delay rate cuts.
On the economic front, the US PPI for final demand rose 2.6% YoY in June, exceeding market expectations. However, sentiment data from the University of Michigan fell short of predictions. The CME Fedwatch Tool predicts a high chance of a 25 bps cut in September, while there is speculation that the RBA may delay rate cuts or even raise interest rates due to high inflation in Australia.
Technical analysis of the AUD/USD pair indicates a bullish stance with signs of a possible correction. The RSI and MACD suggest that the pair is nearing overbought territory, hinting at a potential downward correction. Buyers are aiming to maintain the 0.6760-0.6780 range and breach the 0.6800 area, while support levels are set at 0.6670, 0.6650, and 0.6630.
Inflation measures the increase in the price of a basket of goods and services, with core inflation excluding volatile elements such as food and fuel. The Consumer Price Index (CPI) tracks changes in prices over time, with core CPI excluding these volatile inputs. High inflation typically leads to higher interest rates, which can strengthen a country’s currency. Gold was traditionally a hedge against inflation but may be negatively affected by higher interest rates.
In conclusion, the AUD’s positive trajectory against the USD is supported by a combination of economic data, monetary policy divergence, and technical analysis. The RBA’s delay in rate cuts, coupled with the potential for a dovish Fed, could further bolster the AUD’s gains. However, market conditions and inflation dynamics will continue to play a crucial role in shaping the future movements of the AUD/USD pair.
