• AUD/USD surged 0.66%, eyeing 0.6700, as US inflation shows signs of slowing and US dollar softening.
  • Despite weaker Chinese data and lower CPI, the AUD finds support in reduced expectations of aggressive Fed hikes.
  • A sharp rise in the Australian dollar and a 0.48% drop in the US dollar index reflect a reassessment of the Fed’s future tightening stance.

AUD/USD is surging and eye-testing 0.6700 after economic data from the United States (US) showed inflation cooling and weakening the US dollar (USD) despite solid data released on Thursday. So the Australian dollar (AUD) takes a breather and the AUD/USD pair trades hands at 0.6658, gaining 0.66% after hitting a daily low of 0.6603.

Cooling US inflation softens dollar and supports Aussie, despite weaker Chinese data, muted RBA expectations

The US Economic Survey showed plenty of data as the week, month and end of the quarter approaches. The US Commerce Department released the Fed’s preferred gauge of inflation, Core Personal Consumption Expenditures (PCE), which rose 0.3% month-on-month, in line with estimates, below April’s 0.4%. The annual data showed a lower reading of 4.6% from 4.7% in the previous month, showing that inflation is consolidating and not slowing at the pace predicted by the Fed. The aggregate data showed that inflation was much lower than the monthly data.

In other Chicago National Activity Index data PMI rose 41.5, beating May’s print of 40.4, a slight improvement but shy of entering expansionary territory. At the same time, the University of Michigan (UoM) survey of consumer sentiment rose to 64.4, above estimates and a preliminary reading of 63.9.

On the Aussie front, the Aussie (AUD) remains under pressure from weaker Chinese data as factory data dented market sentiment during the Asian session. Expectations of further tightening by the Reserve Bank of Australia (RBA) fell after the latest CPI report showed inflation fell to a 13-month low. So money market futures point to six basis points of tightening by July, but investors expect rates to peak around 4.50% by December 2023.

AUD/USD climbed from around 0.6620 to 0.6650 after the US data release. This reflects the expectations of traders Fed to raise rates, but not as aggressively as expected after Thursday’s upbeat data. As a result, U.S. Treasury yields fall, while yields on the U.S Dollar indexa measure of the dollar’s performance against a basket of six currencies, slightly lower by 0.48% to exchange hands at 102.925.

On the Fed’s monetary policy front, odds of a 25 basis point hike remain elevated at 87%, according to the CME FedWatch Tool, with traders still expecting another rate hike toward November 2023.

AUD/USD Price Analysis: Technical Outlook

After falling to a weekly low of 0.6595, AUD/USD bounced off the lows and rose above 0.6650, a psychological level. It has to be said that for a bullish continuation, AUD/USD needs to break the June daily low of 0.6662 from 23 June to open the way to the confluence of the daily EMAs, with the 20, 50 and 100 hovering around 0.6700. Otherwise, AUD/USD pair will be subject to further selling pressure, with sellers eyeing 0.6600, the weekly low of 0.6590 and the daily high of May 30 turned support at 0.6559.

Upcoming events

Economic calendar

Source Link