AUDUSD lost some significant value during the Asian session today after the Q2 Inflation report was released. The pair has lost over 43 pips falling from the opening price of $0.6955 to a low at $0.6912.
Whispers of the RBA hiking the interest rate were forced to leave the scene after the long-awaited Q2 Consumer Price Index (CPI) report came out lower. Forecasts show a very high reading for this report, pushing the Reserve Bank of Australia (RBA) to aggressively hike interest rates. However, a lower reading shows the economy is not currently bedevilled by inflation and fears of recession, as we find in the US and UK today.
According to the data released this morning, the Australian CPI for the second quarter ended in June was 1.8% q/q, much lower than the forecast of 1.9%. Judging from these records, it is evident that the inflation rate for the second quarter has decreased by 0.3% q/q compared to the previous 2.1% seen in the first quarter. The trimmed mean of the CPI for the second quarter remained stable at 1.5%. Further, the CPI YoY eased to 6.1% against the previous record of 6.2%. These reports have significantly lowered the chances of a possible interest rate hike by the Monetary Policy Committee in August. Hence, some investors looking up to potential interest rate hikes for the Australian dollar were quick to take profits immediately ahead of the expected Fed rate hike today.
The next focus for AUDUSD is the expected Fed rate hike which will significantly affect this pair today. During the US trading session today, the Federal Open Market Committee (FOMC) will be expected to hike the interest rate by at least 75 basis points. Some predict lower or higher, but the general emphasis is on hiking 75 basis points today. Hiking the Fed rate always affects all pairs against USD in the market. Hence, we expect a downward trend for AUDUSD if the Fed rate is hiked aggressively today. Given the expected interest rate hike for the US dollar today, the bears will be expected to take over the AUDUSD. The first support level to look up to for this pair is seen at $0.6863. A break below this level could lead to the lower support at $0.6807.
Alternatively, should the Fed turn out dovish today, which is least expected, we can hope for a bullish AUDUSD with the significant resistance at $0.728.
In all, intense volatility is expected from this pair today. Traders should use proper risk management strategies to sustain their accounts if the market goes against them.
Other factors to influence the Australian dollar this week.
Two other essential pieces of data will be released tomorrow, determining the price target for AUDUSD this week. We have discussed them below:
- Import Prices q/q: The import prices, which measure the change in the prices of goods purchased by importers, will be released tomorrow. An increase in the cost of production will affect product prices, increasing inflation. The forecast for this data is 5.7%, while the previous record is 5.1%. Lower reading from this data will help to keep inflation lower.
- Retail Sales: The retail sales report measures the total number of consumer purchases at the retail level. Higher sales are a good sign of economic progress. The forecast for this data is 0.5%, while the previous record was 0.9%. A higher reading is good for the Australian dollar.
