The Australian Dollar (AUD) showed strength against the US Dollar (USD) on Wednesday, reaching 0.6670 following the release of US inflation data. The data revealed a decrease in the Consumer Price Index (CPI), leading to speculation that the Federal Reserve (Fed) may slow down interest rate hikes.
Reserve Bank of Australia (RBA) Assistant Governor Sarah Hunter’s comments also supported the AUD’s rise. Hunter emphasized that Australia’s labor market remains tight relative to full employment, reinforcing the RBA’s hawkish stance.
Key Points from the Market:
- The US CPI declined to 2.5% year-on-year (YoY), below expectations and the previous reading.
- Core CPI, excluding volatile items, matched market expectations at 3.2% YoY.
- Market futures traders adjusted rate cut probabilities, with a higher chance of a 25 bps cut by the Fed.
Technical Analysis for AUD/USD Pair:
The AUD/USD pair faces a mixed outlook as indicated by the Relative Strength Index (RSI) and Moving Average Convergence Divergence (MACD). The RSI shows recovering buying pressure, while the MACD suggests weakening selling pressure.
Resistance levels for the pair are at 0.6700 and 0.6740, while support levels are at 0.6660 and 0.6620.
Analysis and Implications:
The rise of the Australian Dollar against the US Dollar can be attributed to the decline in US CPI and the RBA’s hawkish stance on inflation. This development could signal a shift in monetary policy expectations, with the Fed potentially slowing down rate hikes and the RBA delaying rate cuts.
For investors, this means potential opportunities in the currency markets as policies align between central banks. Understanding the impact of inflation on currencies and interest rates is crucial for making informed investment decisions.