AUD/USD bounce fizzles as droopy data lessens RBA rate hike risks

A trio of underwhelming data releases has seen the AUD/USD fall sharply in Asian trade, further bolstering the view the RBA is done hiking interest rates.

Inflation risks recede, construction outlook darkens

The key release was the inflation gauge which undershot expectations by some margin, reflecting not only easing price pressures but also the impact of temporary electricity subsidies for some households.

The annual rate fell from 5.5% to 4.9% in July, continuing to move back towards the top of the RBA 2-3% inflation target range. Markets were looking for a smaller decline to 5.2%. The RBA’s preferred trimmed mean inflation measure slowed from 6.0% to 5.6% while the separate CPI-ex volatile items and holiday travel eased to 5.8%, down from 6.1% previously. The latter is deemed as the best view on trends in underlying inflation.

Elsewhere, construction data continued to whiff. Construction work completed in Q2 rose 0.4%, less than double the 0.9% lift expected. Building approvals for July skidded 8.1% after a similar decline in June, led by significant weakness in higher density dwellings.

AUD/USD pressured but look abroad for next market drivers

AUD/USD fell sharply on the trio of data disappointments, losing 0.4% before recovering in recent trade. Selling dissipated at .6450, a level the AUD/USD has done a lot of work around in August. Below that level, a support range kicks in at .6405 and again at .6385. On the topside, a resistance zone located from .6485 has capped bounces over the past two weeks. A break of that level would open the door for a test of .6500 and beyond.

AUD/USD Hourly Chart. Source: Trading View, StoneX

While the local data has taken the sails out of the AUD/USD for the moment, developments in Chinese markets and upcoming top-tier US economic data will play a far greater role in determining the trajectory for the Aussie.

-- Written by David Scutt

Follow David on Twitter @scutty