Currency pair of the week: AUD/USD
Fawad Razaqzada August 8, 2022 7:40 AM
All eyes will be on US CPI, undoubtedly the week's most important macro release on Wednesday.
The US dollar has started the new week giving back some of its post-NFP gains, especially against the Australian dollar, which has been boosted by improving risk appetite after China’s latest exports data beat expectations. What’s more, oil prices have weakened again, and this is providing drag on bond yields, which is supporting the likes of silver, bitcoin, Swiss franc and Japanese yen – currencies and commodities that carry very low or zero yield. The macro calendar is quiet this week with US inflation data in mid-week being the main highlight. This will keep the dollar pairs in focus after a very strong US jobs report on Friday rekindled the possibility of a hattrick of 75 basis point rate hikes in September. But with around 1 and a half months to go until the next FOMC meeting, we will have one more job report, two more CPI reports and plenty of other important data in between that could dramatically change the outlook by the time of the Fed rate setters’ September 21 meeting.
How hot was US inflation in July?
US CPI will undoubtedly be the most important macro release on Wednesday. Inflation might have already come down more than expected in July, which may be another reason why the dollar longs/bulls are refusing to keep the currency bid.
Economists think CPI rose +0.2% m/m, with the y/y reading expected to print +8.7%, down from June’s 9.1% print. Let’s see if annual inflation will come down after reaching its highest since November 1981.
There are reasons why inflation will slow going forward. We saw the ISM PMI reports reveal sharp slowdown in prices paid sub-indices. Global supply chain pressures have eased. Shipping costs have fallen. Crude and other commodity prices have dropped. Consumers’ buying power have been squeezed, which should be disinflationary. Elon Musk has said the global economy has gone “past peak inflation,” with his electric car company’s commodity and component costs trending downward. Clearly, it will be some time before these changes filter through the economy and show up in data.
So, now that the dust has settled from Friday’s strong jobs report, we are seeing renewed weakness in US dollar and bond yields as forward-looking markets anticipate a sharper slowdown in US rate hikes, perhaps after the September meeting.
US UoM Consumer Sentiment (Friday)
Also important to watch this week will be Friday’s release of the University of Michigan’s closely-followed Consumer Sentiment and Inflation Expectations surveys. Thanks to soaring prices of everything from gas to food, consumer sentiment in the US has been dropping rapidly in recent months, mirroring the situation in Europe and the rest of the world. However, the US economy has weathered the inflation storm better than other regions, which is why the dollar has been so strong. But is the momentum changing?
AUD/USD holds breakout
The AUD/USD has made back the losses from Friday, which is a sign of a bullish reversal on its own. But more to the point, it has also held the breakout above the bearish trend line and support around 0.6875. From here, a re-test of the 0.70 handle looks very likely. Potentially, we could see the Aussie go for a test of the 200-day average around 0.7150, which also happens to be the base of the breakdown in June.
This bullish outlook will be invalidated if support at 0.6875 breaks on a daily closing basis.
Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.
Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.