Aussie CPI Jumps Again

AUDUSD is trading higher today on the back of the latest Australian inflation figures released overnight. Aussie CPI was seen unexpectedly jumping to 4% last month, up from 3.6% prior and above the 3.8% the market was looking for. Sticky inflation has been a big challenge for the RBA over recent months and despite signalling a desire to move into monetary easing, data has so far prohibited the bank from doing so. Indeed, there has been growing speculation in recent weeks that the bank might be forced to tighten rates again given inflationary conditions.

Hawkish Risks Building

Today’s data is feeding into that hawkish view with traders now sensing that a rate hike is forthcoming. With inflation having now risen for three straight months traders are speculating that the bank will opt for a hike at the coming August meeting unless we see a sharp decline in coming months. Given the current trajectory of price pressures, such a reversal seems unlikely. Given that, at the same time, the market is expecting the Fed to cut rates in September, this creates very tradeable policy divergence between the Fed and RBA which should keep AUDUSD supported for now. Looking ahead this week, key US inflation data on Friday will be the main focus with Aussie bulls looking for a downside surprise to weigh on USD.

Technical Views

AUDUSD

For now, the pair continues to range beneath the .6681 resistance level. However, with momentum studies turning higher, focus is on an eventual break to the upside here with .6857 the first target for bulls. To the downside, failure here will put focus back on support at the .6520 level.  

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