AUD / USD faces Australian CPI report and Fed rate decision

Australian dollar talking points

AUD / USD faces a number of key risk events towards the end of July as the Australian Consumer Price Index (CPI) is expected to hit a 13-year high, while the Federal Reserve appears to be on the brink. . the political currency.

Fundamental Forecast for the Australian Dollar: Neutral

AUD / USD records a series of higher highs and lows as it recovers from a new monthly low (0.7289), and Australia’s CPI index could influence the exchange rate ahead of the rate decision. of interest from the Federal Open Market Committee (FOMC), as inflation is projected to rise to 3.8% in the second quarter of 2021, marking the highest reading since 2008.

Stronger-than-expected inflation signals may spark a bullish reaction in the Australian dollar as Reserve Bank of Australia (RBA) insists that ‘CPI inflation is expected to temporarily rise to around 3.5 percent during the year to June quarter ‘, and a sharp rise in consumer prices may pressure the central bank to change its tone for the rest of the year as’ t’. economic recovery in Australia is stronger than expected and it is expected to continue. «

However, a lower than expected CPI impression could shake up the recent rally in AUD / USD as it encourages the RBA to maintain the current course of monetary policy and the board may continue to support a wait and see approach in its next August. 3 meeting. As Governor Philip Lowe defines “full employment,” and the head of the central bank commits to “Provide the continued monetary support that the economy needs as it moves from recovery to expansion. «

In the meantime, the FOMC may begin to adjust its advance guidance as “v Attendees said they expected the conditions to begin slowing the pace of asset purchases to be met a little earlier than they had anticipated in previous meetings.” New developments coming from the central bank could trigger a bullish reaction in the US dollar if the committee outlines an interim exit strategy.

On the other hand, the dollar may face headwinds as President Jerome Powell tells US lawmakers that the FOMC will provide “early warning of an announcement to slow down the pace of purchases,” and the central bank could simply buy time before the September quarterly meeting as’ the Committee’s standard of ‘most substantial progress’ was generally considered to have not yet been met. «

He said this, AUD / USD is likely to face further volatility towards the end of July and it remains to be seen if key event risks will affect the exchange rate between deviant trajectories between the RBA and the FOMC.

– Written by David Song, Currency Strategist

Follow me on @DavidJSong

Read also Japanese Yen Technical Forecasts: USD / JPY, EUR / JPY, GBP / JPY, AUD / JPY

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