As usual, CPI readings will have a significant impact on the Australian Dollar (AUD) as the figures will guide the RBA's upcoming monetary policy meetings. The figures would be interpreted as how they could affect the Board's decisions. With that in mind, a higher-than-anticipated outcome would force the central bank to keep interest rates at current levels for longer. Market players do not expect higher rates, but policymakers may try to cool down expectations of soon-to-come rate cuts. Generally speaking, higher interest rates tend to provide support to the local currency. On the contrary, below-expected figures could boost rate-cut expectations, undermining demand for the Aussie.
From a wider perspective, easing inflationary pressures should be understood as better odds for economic progress and benefit the AUD in the long run.
Ahead of the CPI release, AUD/USD trades around 0.6450, recovering from 0.6360, the year-to-date low set this April. The US Dollar (USD) has soared on the back of risk aversion triggered by Middle East woes and decreasing odds for a US Federal Reserve’s (Fed) rate cut in June. The Greenback shed some ground at the start of the week, but its undeniable strength prevails.
Valeria Bednarik, FXStreet Chief Analyst, says: “The AUD/USD pair offers a limited bullish potential, according to technical readings in the daily chart. The latest recovery seems corrective, given that the pair is losing upward momentum well below bearish moving averages. Furthermore, technical indicators are developing below their midlines with neutral-to-bearish slopes, suggesting AUD/USD may soon resume its slide.”
Bednarik adds: “The pair is currently battling a relevant resistance area, followed by a stronger one at around the 0.6500 threshold. An advance towards the latter won’t affect the dominant bearish case but, on the contrary, provide sellers with fresh opportunities. Near-term support levels come at 0.6400 and 0.6360, while a break below the latter exposes the 0.6320 price zone.”
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