AUD/USD Soft after Weak Australian CPI Inflation

AUD/USD Analysis

The pair runs a losing month, during which it hit the lowest levels in nearly one year, after the last Australian employment report two weeks ago. This showed cooling in the hot labor market, since Unemployment rose to 3.7% in July and 14.6K jobs were lost, in the biggest decline of the year.

More importantly, inflation has been moderating from its peak, printing 6% y/y in Q2. Today's monthly CPI data, showed further deceleration to 4.9% in July, in the smallest increase in over a year. The Reserve bank of Australia held rates at 4.1% for the past two straight meetings and these data points could allow policymakers to stay again on the sidelines next month.

At the same time, the USDOLLAR comes from a six-week profitable streak, as the Fed's higher-for-longer narrative gained traction and Chair Powell warned that officials are "prepared to raise rates further if appropriate" in his Jackson Hole speech last Friday. ^[1]

AUD/USD is soft today after the weak CPI print and remains exposed to the 2023 lows (0.6363), although a breach of 0.6271 has a higher degree of difficulty.

On the other hand, the Aussie finds support this week and got a lift yesterday from the poor US JOLTS print, which showed the smallest increase in job openings in more than two years. This pushed back the recently heightened market expectations for another hike by the Fed in 2023. Furthermore, RBA's Ms Bullock who will become its Governor after the next policy decision, said on Tuesday that inflation is "still too high" and officials "may have to raise interest rates again". ^[2]

This creates prospects for a rebound towards the crucial 0.6540-66 region. Daily closes above it would pause the downside momentum, but AUD/USD does not inspire much confidence for sustained recovery under current conditions.

In any case, the trajectory of the pair will likely be determines by incoming critical US releases, that will be taken into account by Fed policymakers.