AUD/USD is consolidating the rally from 0.7456 to 0.7450 highs scored late US session while we keenly await the Australian CPI data.
AUD/USD has turned in the month of July after late May's rally that topped out at 0.7653. A series of US data over recent week's has raised sentiment for a rate hike from the Federal Reserve, lifting the US dollar from its doldrums of Q1's performance while at the same time, the Australian economy has taken a turn for the worse encouraging the RBA to have moved to an explicit easing bias.
The elements of the economy that are a main concern are inflation, labour, and the housing market data according to analysts at ANZ whose explained that today’s Q2 CPI remains critical to the rates decision at the Board meeting next week.
Australian CPI expectations
The same analysts at ANZ offered Australian CPI expectations as follows: "We expect the average of the underlying measures to rise by 0.4% q/q, which would see year-ended core inflation moderate to 1.4% from 1.5% and six month-ended annualised inflation edge down to just 1.2%. Tradables inflation continues to be suppressed by intense competitive pressures, while weak wages growth is expected to see non- tradables inflation moderate further."
Implications for the RBA
"Such a result would reinforce the weak inflationary pulse, and combined with softer labour and housing data, as well as a relatively elevated AUD, see another cut to the RBA cash rate next week," explained the analysts.
AUD/USD levels to monitor
AUD/USD has failed significantly ahead of the 78.6% retracement at 0.7688 while probing the 0.7450 level in recent sessions. 0.7416 at the 55 day ma guards the 200 day ma at 0.7321 while the 2016 support line lies 0.7287.
A rally through 0.7520 opens 0.7540 and yesterday's high and the 18th July high at 0.7591. "Resistance at 0.7688 and the 3rd May high 0.7717 represent the last defense for the 0.7836/50 recent high and the 38.2% retracement, this is tougher resistance and we look for the market to fail here, if this is reached," explained analysts at Commerzbank.
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