The AUD/USD pair is trading higher near 0.6575 in the early Asian session on Monday, with support coming from the Reserve Bank of Australia’s (RBA) hawkish stance and better-than-expected Chinese inflation data. However, concerns about rising geopolitical tensions in the Middle East could limit the pair’s gains.
Last week, the RBA decided to keep interest rates unchanged at 4.35% for the sixth consecutive meeting. RBA governor Michele Bullock highlighted the potential for inflation risks and signaled a willingness to raise rates if necessary. This hawkish outlook is expected to support the Australian Dollar (AUD) in the short term.
In addition, China’s Consumer Price Index (CPI) rose by 0.5% in July, exceeding expectations due to seasonal factors. This positive data lifted the AUD, although worries about weak Chinese demand could dampen the pair’s upside potential. Traders will closely monitor Chinese Retail Sales and Industrial Production data later in the week, as well as Australian employment figures.
On the other hand, market expectations suggest that the Federal Reserve (Fed) may begin easing monetary policy at its upcoming meeting in September. The possibility of a 50 basis points interest rate cut by the Fed in September stands at 52.5%, down from 57.5% previously.
Geopolitical tensions in the Middle East, particularly concerning Iran’s military preparations, could lead to safe-haven flows benefiting the US Dollar. Any escalation in geopolitical risks may impact market sentiment and influence currency movements.
Analysis:
The AUD/USD pair is currently experiencing upward momentum due to the RBA’s hawkish stance and positive Chinese CPI data. However, concerns about geopolitical tensions and the potential Fed rate cuts could impact the pair’s future performance. Traders should monitor upcoming economic data releases and geopolitical developments to gauge market sentiment and make informed investment decisions.