AUD/USD drops further towards 0.7700 on downbeat Australia Q1 CPI
|- AUD/USD takes offers for the second consecutive day.
- Aussie Q1 CPI, RBA Trimmed Mean CPI came in below forecasts.
- Fitch cites downside risk for Aussie credit markets on stimulus withdrawal.
- Trading sentiment remains sluggish ahead of the Fed but US dollar extends the previous day’s gains.
AUD/USD stands on a slippery ground near 0.7730, down 0.45% intraday, after Australia inflation figures disappoint traders during early Wednesday. Also contributing to the aussie pair’s weakness could be the pessimism surrounding stimulus withdrawal and the US dollar strength.
Australia’s first quarter (Q1) Consumer Price Index (CPI) dropped below 0.9% forecast and prior to 0.6% QoQ while also staying below 1.4% market expectations to 1.1% on YoY. Further, RBA Trimmed Mean CPI follows the suit while staying below forecasts and previous readouts.
Read: Breaking: Aussie CPI mainly in below expectations, AUD pressured
Earlier in the day, global rating agency Fitch said, “Withdrawal of central bank credit and QE measures pose the most serious risk for Australian credit markets over next 12 months.” On the other hand, Westpac mentioned,” We are forecasting that the RBA will extend its Quantitative Easing program (QE) with a third $100 billion program (QE3), which will begin in the first week of September.”
Global markets stay lackluster ahead of the US Federal Reserve’s (Fed) monetary policy decision. However, chatters surrounding US President Joe Biden’s stimulus measures, including already passed, in the pipeline and to be proposed, seem to favor the US dollar by the press time. That said, the US dollar index (DXY) rises for the second consecutive day, up 0.12% intraday around 90.98.
It should be noted that the pre-Fed caution joins the covid woes from Asia and uneven vaccinations in the West to weigh on the mood. However, hopes of upbeat comments from the Federal Open Market Committee (FOMC), higher vaccine rollout and easy travel plans from the US, Europe and the UK battle the market bears.
Amid these plays, S&P 500 Futures print mild gains and so do shares in Australia. Further, the US 10-year Treasury yields catch a breather around 1.62% after rallying the most in six weeks.
Moving on, AUD/USD may witness sluggish moves during the typical pre-Fed trading lull. However, the US dollar recovery may keep a tab on the upside.
Read: Federal Reserve Preview: Will Powell power up the dollar? Three things to watch out for
Technical analysis
Unless crossing the 0.7800 threshold, AUD/USD is likely declining towards the confluence of a two-week-old rising support line and 50-day SMA, around 0.7720.
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