Australian dollar sinks on benign CPI data

The Australian dollar gave up overnight gains in the aftermath of headline CPI of 6.0% missing forecasts of 6.2% year-on-year to the end of June and against 7.0% previously.

Australia’s S&P/ASX 200 equity index got a boost on hopes that the RBA might be near the end of its tightening cycle.

The June quarter-on-quarter headline CPI was 0.8% rather than the 1.0% anticipated and 1.4% prior.

The RBA’s preferred measure of trimmed-mean CPI was 5.9% year-on-year to the end of June instead of estimates of 6.0% and 6.6% previously.

The trimmed mean quarter-on-quarter CPI read of 1.0% was below the 1.1% forecast and 1.2% for Q1.

Going into today’s data, the interest rate futures markets ascribed around a 40% probability of a 25 basis-point hike by the RBA at their monetary policy meeting next Tuesday. The dial moved only slightly toward a less chance post-CPI.

Later this week PPI and retail sales data will also be released. Last week saw another blistering jobs report with the Australian unemployment rate running near 50-year lows of 3.5%.

Elsewhere, the International Monetary Fund (IMF) raised its forecast for global GDP growth in 2023 from 2.8% to 3%. The Australian economy and currency are linked to the outlook on global activity due to many of its exports expanding and contracting depending on external demand.

The good news from the IMF compounded a rosy regional perspective after China’s Politburo made a series of pro-growth statements earlier in the week.

The early part of this week saw the Aussie dollar rally with the US dollar coming under pressure ahead of the Federal Open Market Committee (FOMC) meeting later today.

Today’s move in AUD/USD has erased most of those gains. The RBA meeting next Tuesday will be the key domestic focus for Australian dollar financial products.

AUD/USD technical analysis

After a stellar rally to start the week and then a collapse today, AUD/USD remains in the five-month trading range of 0.6459 – 0.6900.

A break above 0.6920 would negate the pattern, but if it stays below that level, potential bearishness may continue to evolve.

Resistance could be at the prior peaks in the 0.6900 and 0.6920 zone ahead of possible resistance in the 0.7010 – 0.7030 area.

On the downside, support might be near the recent low of 0.6715 which is amongst several daily simple moving averages (SMA).

The dip lower to start this week was unable to penetrate below the 200- and 260-day SMAs and the 0.6690 – 0.6740 might continue to lend support. A clean break below 0.6690 might reveal bearish momentum.

AUD/USD daily chart

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