Australian Dollar surges amid soft US inflation

AUD/USD trades sharply higher near 0.6990 on Tuesday, approaching the psychological 0.7000 level as the US Dollar (USD) falls following weaker-than-expected United States (US) inflation figures.

The US Consumer Price Index (CPI) declined 0.4% MoM in June, compared with the expected 0.1% decrease and May’s 0.5% increase. Annual inflation slowed sharply to 3.5% from 4.2%, below the market forecast of 3.8%. Core CPI remained unchanged during the month, while the annual underlying rate eased to 2.6% from 2.9%, also undershooting expectations.

US employment indicators showed some moderation as the ADP Employment Change four-week average declined to 19.75K from 21K. The weaker inflation and employment readings overshadowed relatively hawkish comments from Fed Chair Kevin Warsh during his testimony before Congress.

Warsh said policymakers have “no tolerance for persistently elevated inflation” and remain firmly committed to restoring price stability. However, he provided no clear signal regarding the Fed’s next policy move. He also described the labor market as broadly stable, noting that unemployment remains low, layoffs are limited, and nominal wage growth continues to be solid.

Attention now turns to China’s economic releases on Wednesday, which could provide the next catalyst for the Australian Dollar given Australia’s close trade relationship with China. Chinese Gross Domestic Product (GDP) is expected to expand 4.5% YoY in the second quarter, slowing from 5.0% in the first quarter. Quarterly growth is forecast at 0.9%, down from 1.3%. China’s June Retail Sales will also be closely watched.

Short-term technical analysis:

On the 4-hour chart, AUD/USD trades at 0.6992, keeping a bullish near-term bias as it rises well above both the 20-period Simple Moving Average (SMA) at 0.6944 and the 100-period SMA at 0.6926. The pair is pressing against an immediate horizontal resistance at 0.6993, while the Relative Strength Index (RSI) at 66.8 shows firm positive momentum approaching overbought territory, hinting that the advance could be stretched but not yet exhausted.

On the downside, initial support is seen at 0.6970, ahead of a nearby cluster of horizontal levels at 0.6959 and 0.6950 that reinforce the underlying demand zone. Below these, the 20-period SMA at 0.6944 and the 100-period SMA at 0.6926 provide deeper dynamic support. On the topside, a clear break above 0.6993 would open the way for further gains, with the current configuration of rising momentum and stacked moving-average support suggesting dips are likely to be bought while this barrier is challenged.

(The technical analysis of this story was written with the help of an AI tool. Know more.)