The AUD/USD pair has extended its recovery this week, climbing from a low of 0.6350—the lowest level since November 2023—to a two-and-a-half-week high on Friday. The pair is now trading above the crucial 200-day Simple Moving Average (SMA), with traders looking for sustained strength beyond the 0.6600 level before making new positions.
Support for the Australian Dollar (AUD) has been bolstered by hawkish comments from Reserve Bank of Australia (RBA) Governor Michele Bullock and stronger-than-expected inflation data from China. On Thursday, Bullock stressed the importance of staying vigilant about inflation risks and hinted at the possibility of interest rate hikes if needed. Meanwhile, China’s National Bureau of Statistics reported a 0.5% increase in consumer prices for July, surpassing the anticipated 0.3% rise.
The consumer price index (CPI) rose by 0.5% in July, marking the highest increase since February, although the Producer Price Index (PPI) continued its decline for the 22nd consecutive month, falling by 0.8% in July. Despite the persistent PPI drop, the data alleviates concerns about a severe economic downturn in China. This, coupled with diminished fears of a US recession, has improved investor sentiment towards riskier assets, thereby weakening the safe-haven US Dollar (USD) and supporting the Australian Dollar.
Additionally, the USD is pressured by a decline in US Treasury bond yields, fueled by expectations of potential interest rate cuts by the Federal Reserve (Fed) in September. With no significant US economic data due before next week’s Consumer Price Index (CPI) report, the current economic conditions favor further gains for the AUD/USD pair. The pair is on track to record strong weekly gains for the first time in four weeks as attention shifts to the upcoming US CPI data.
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