The Australian Dollar (AUD) faced challenges on Wednesday, with the AUD/USD pair experiencing downward pressure following Federal Reserve (Fed) Chairman Jerome Powell’s testimony before the US Congress. Despite acknowledging improving inflation figures, Powell emphasized a cautious stance, impacting the market’s sentiment.
China’s Consumer Price Index (CPI) also influenced the AUD, as it showed an annual increase of 0.2% in June, down from 0.3% in May, and below the forecasted 0.4%. Monthly, Chinese CPI inflation declined by 0.2% in June, compared to a 0.1% decline in May, and falling short of expectations.
Investors are now closely watching the upcoming second semi-annual testimony by Fed Chair Jerome Powell, along with speeches by Fed officials Michelle Bowman and Austan Goolsbee. Additionally, the release of the US Consumer Price Index (CPI) data on Thursday is highly anticipated. Market forecasts suggest the annualized US core CPI for June will remain steady at 3.4%, while headline CPI inflation is expected to rise to 0.1% month-over-month, up from a previous flat reading.
Market Movers: Australian Dollar Steadies as Powell Reiterates Inflation Caution
During his testimony before the Senate Banking Committee, Fed Chair Jerome Powell highlighted the need for more positive inflation data, stating, “More good data would strengthen our confidence in inflation.” He also noted that a policy rate cut is not appropriate until there is greater confidence that inflation is moving sustainably toward the Fed’s 2% target. Powell mentioned that first-quarter data did not provide the necessary confidence in the inflation trajectory needed to justify rate cuts.
Australia’s 10-year government bond yield remained stable at around 4.4%, as investors processed mixed domestic data. Consumer sentiment fell in July after rising in June, reflecting household concerns over persistent inflation and potential further interest rate increases by the Reserve Bank of Australia (RBA). Conversely, business confidence reached its highest level since January 2023.
The Westpac Consumer Confidence Index for Australia dropped by 1.1% in July, reversing the 1.7% increase in June. This marks the fifth decline in 2024, driven by ongoing worries about high inflation, elevated interest rates, and a sluggish economy.
US Economic Data and Technical Analysis of AUD/USD
In the US, Nonfarm Payrolls (NFP) increased by 206,000 in June, following a rise of 218,000 in May, surpassing market expectations of 190,000. However, the US Unemployment Rate edged up to 4.1% in June from 4.0% in May. Average Hourly Earnings decreased to 3.9% year-over-year in June from 4.1%, aligning with market expectations.
Technically, the Australian Dollar trades around 0.6740 on Wednesday. The daily chart analysis indicates that the AUD/USD pair is consolidating within an ascending channel, suggesting a bullish bias. The 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish momentum.
The AUD/USD pair may test the upper boundary of the ascending channel at approximately 0.6775. A breakthrough at this level could see the pair aiming for the psychological level of 0.6800. On the downside, the pair may find support around the lower boundary of the ascending channel at 0.6670, with additional support near the 50-day Exponential Moving Average (EMA) at 0.6642. A break below this level could push the pair toward throwback support around 0.6590.
As investors digest mixed signals from both the Australian and US economies, the AUD/USD pair’s movements will continue to be influenced by upcoming economic data and Fed communications.
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