AUD/USD Pair Faces Selling Pressure After Soft Australian Inflation Figures

The AUD/USD pair encountered significant selling pressure following the release of disappointing Australian consumer inflation figures.

Arslan Butt•Wednesday, July 26, 2023•2 min read

The AUD/USD pair encountered significant selling pressure following the release of disappointing Australian consumer inflation figures. Despite this, the pair found support near the 0.6730-0.6725 area, leading to a recovery of around 35 pips from the daily low. Currently trading around 0.6760-0.6765, the AUD/USD pair has declined over 0.40% for the day.

The Australian Dollar (AUD) weakened against other currencies after the Australian Bureau of Statistics reported that the headline CPI rose by 0.8% in the second quarter, lower than the estimated 1% and well below the previous 1.4%. The yearly rate also fell short of market expectations, decelerating from 7.0% to 6.2% during the reported period. The data reinforces the case for the Reserve Bank of Australia (RBA) to hold off on future rate hikes, putting pressure on the domestic currency. Additionally, a slight uptick in the US Dollar (USD) further contributed to the aggressive selling around the AUD/USD pair.

The USD Index (DXY), which tracks the USD against a basket of currencies, moves closer to a two-week high supported by upbeat US macro data. The data indicated an extremely resilient economy, with consumer confidence reaching a two-year high in July. This optimism suggests the possibility of the economy avoiding a recession this year and provides support to the USD. However, USD bulls are cautious and await further cues about the Federal Reserve’s (Fed) policy outlook before placing fresh bets.

Investors have priced out the possibility of further interest rate hikes after the 25 bps lift-off in the two-day FOMC monetary policy meeting. However, they remain skeptical if the Fed will adopt a more dovish stance. All eyes are on the accompanying monetary policy statement and Fed Chair Jerome Powell’s remarks at the post-meeting press conference for insights into the future rate-hike path, which will influence the USD price dynamics and impact the AUD/USD pair’s direction.

Meanwhile, optimism surrounding potential stimulus measures from China supports the bullish sentiment in global equity markets. This factor limits gains for the safe-haven USD and provides some support to the risk-sensitive Aussie. Traders are advised to wait for strong follow-through selling before considering fresh bearish positions on the AUD/USD pair.

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ABOUT THE AUTHOR See More

Arslan Butt

Index & Commodity Analyst

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.