The Australian Dollar (AUD) experienced a decline in value on Wednesday, attributed to the strengthened US Dollar (USD) following Federal Reserve (Fed) Chairman Jerome Powell’s Congressional testimony. Powell emphasized that a rate cut would not be appropriate until the Fed gains confidence in reaching a 2% inflation target, despite acknowledging improving inflation figures. Additionally, China’s Consumer Price Index (CPI) fell by 0.2% in June, as opposed to a 0.1% decline in May, indicating a decrease in inflation within the country.
Traders are closely monitoring upcoming events, including the second semi-annual testimony by Fed Chair Jerome Powell, as well as speeches by other Fed officials. The US Consumer Price Index (CPI) data is also set to be released, with forecasts predicting a steady annual US core CPI for June and an increase in headline CPI inflation month-over-month. The daily market movements suggest a decline in the Australian Dollar due to hawkish comments from Powell during his testimony.
During Powell’s testimony, he highlighted the importance of sustained confidence in inflation before considering a policy rate cut, leading to a decline in Australia’s 10-year government bond yield. Mixed domestic data in Australia, including a drop in consumer sentiment and rising business confidence, contributed to the weakening Australian Dollar. In the US, Nonfarm Payrolls (NFP) increased in June, surpassing market expectations, while the Unemployment Rate edged up slightly.
Technical analysis of the AUD/USD pair indicates a bullish bias as it hovers around 0.6740, consolidating within an ascending channel. The 14-day Relative Strength Index (RSI) supports bullish momentum, with potential resistance at 0.6775 and 0.6800. Support levels are identified around 0.6670 and 0.6642, while a break below may lead to further downside towards 0.6590. The Australian Dollar’s performance against major currencies is reflected in the percentage changes shown in the table.
The Reserve Bank of Australia (RBA) plays a crucial role in setting interest rates and managing monetary policy to maintain price stability and economic prosperity. Inflation, traditionally seen as negative for currencies, can attract capital inflows and strengthen the Australian Dollar. Macroeconomic data, including GDP and employment figures, impact currency value. Tools such as quantitative easing and tightening influence the Aussie Dollar, with QE potentially resulting in a weaker AUD. Quantitative tightening, on the other hand, may support a bullish Australian Dollar.
