AUDUSD is moving in Ascending channel and market has rebounded from the higher low area of the channel
AUD/USD Strengthens as US Dollar Falters Amid Easing Price Pressures
The AUD/USD pair has been showing strength as the US Dollar weakens, driven by easing price pressures and softer US inflation data for June. Let’s dive into what’s been happening with the AUD/USD pair, why the US Dollar is under pressure, and what to watch for in the coming days.
Why the US Dollar Is Struggling
Soft US Inflation Data
The main reason behind the US Dollar’s recent struggles is the soft inflation data for June. The US Consumer Price Index (CPI) report indicated that inflation is slowing down, which has led to increased speculation about potential rate cuts by the Federal Reserve (Fed). This is a significant change from the earlier part of the year when inflation seemed to be more persistent.
- Annual Headline Inflation: The annual headline inflation decelerated to 3.0%.
- Core CPI: Excluding volatile food and energy prices, the core CPI unexpectedly fell to 3.3%.
These figures suggest that the Fed might not need to keep interest rates as high as previously anticipated, sparking talk of rate cuts as soon as September.
Market Expectations
With the softer inflation data, market expectations for a Fed rate cut have surged. According to the CME FedWatch tool, a rate cut in September is now seen as almost certain. There’s even talk of another rate cut potentially happening in November or December. This prospect of early rate cuts has heavily weighed on the US Dollar, causing the US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, to drop near 104.35.
Impacts on the AUD/USD Pair
Aussie Dollar Gains Strength
The AUD/USD pair has capitalized on the weakening US Dollar. After a mild correction, the pair rose to near 0.6755 during Friday’s European session and is aiming to recapture the 0.6800 mark. The Australian Dollar’s performance is closely tied to several factors, including economic developments in China.
AUDUSD is moving in Ascending channel and market has fallen from the higher high area of the channel
China’s Economic Influence
China plays a crucial role in the Australian economy due to their strong trade relationship. Investors are closely watching China’s upcoming third plenum meeting, which is expected to discuss measures to boost the real estate and manufacturing sectors. Positive announcements from this meeting could significantly strengthen the Australian Dollar. Conversely, if the measures fall short of expectations, the AUD could face some pressure.
Market Sentiment and Upcoming Data
Risk-Sensitive Assets
The current market sentiment remains favorable for risk-sensitive assets like the Australian Dollar. This sentiment is reflected in the S&P 500 futures, which have posted nominal gains during European trading hours. A positive market sentiment generally supports the AUD, as it is considered a risk-sensitive currency.
US Producer Price Index (PPI)
Looking ahead, investors will be focusing on the US Producer Price Index (PPI) data for June, set to be released at 12:30 GMT. This data will provide further insights into inflationary pressures and could influence the Fed’s decision-making process regarding interest rates. Any signs of easing inflation could bolster the case for rate cuts, putting further pressure on the US Dollar and potentially supporting the AUD/USD pair.
AUDUSD has broken Descending channel in upside
What to Watch For
As we move forward, several key factors will play a role in determining the direction of the AUD/USD pair:
- Fed’s Rate Decisions: Any official announcements or hints from the Fed regarding rate cuts will be crucial. If the Fed confirms the market’s expectations of a rate cut in September, the US Dollar could weaken further, providing more support for the AUD.
- China’s Third Plenum Meeting: The outcomes of this meeting could significantly impact the AUD. Positive news from China, such as strong fiscal measures to boost the economy, could strengthen the Australian Dollar.
- Upcoming Economic Data: In addition to the US PPI data, other economic indicators from both the US and Australia will be important to watch. These indicators will provide more clarity on the economic conditions and could influence the central banks’ policy decisions.
Final Thoughts
The AUD/USD pair is benefiting from the weakening US Dollar amid soft US inflation data and growing expectations for Fed rate cuts. The Australian Dollar is also influenced by developments in China, particularly the upcoming third plenum meeting. As always, market sentiment and upcoming economic data will play critical roles in determining the pair’s direction.
Keep an eye on the Fed’s announcements, the outcomes of China’s economic policies, and the latest economic indicators to stay informed about potential movements in the AUD/USD pair. By understanding these factors, you can better navigate the forex market and make informed trading decisions.
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