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The Australian Dollar is inching higher early Wednesday after hitting a two-year low the previous session. However, the currency was able to rebound enough to close higher, posting a potentially bullish closing price reversal bottom in the process.
Contributin to the volatile, two-sided trade is short-covering and position-squaring ahead of Wednesday’s U.S. Consumer Price Index (CPI) report. This report is expected to set the tone for the session and could determine Fed policy when central bankers meet on July 26-27. Currently, the market is pricing in a 75-basis point rate hike for July and a 50-basis point rate hike in September.
At 03:37 GMT, the AUD/USD is trading .6775, up 0.0018 or +0.26%. On Tuesday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $66.94, up $0.33 or +0.49%.
US Consumer Inflation: Hot Headline, Cooler Core
June’s headline consumer price index is expected to have been even hotter than May’s report, but consumer inflation may have finally peaked given the decline in oil and gasoline prices in July.
Headline CPI is expected to rise by 1.1%, compared with 1% in May, according to Dow Jones. On a year-over-year basis, CPI is seen rising by 8.8%, up from May’s 8.6%, the highest since 1981.
Core inflation, on the other hand, is expected to continue to cool, slowing now for a third month. Excluding energy and food, June’s core CPI was expected to rise 0.5%, compared with 0.6% in May. That would be 5.7% year-over-year jump in June, down from 6% in May. Core CPI peaked at 6.5% in March.
China Trade Balance Data on Tap
Aussie traders are now awaiting the release key Trade Balance data from China. This could move the currency because its outcome will influence risk sentiment, one of the key factors driving movement in the currency.
Short-Term Outlook
Trader reaction to a minor pivot at .6745 is likely to determine the direction of the AUD/USD early Wednesday.
Bullish Scenario
A sustained move over .6745 will indicate the presence of buyers. Taking out Tuesday’s high at .6779 will confirm yesterday’s closing price reversal bottom. This could trigger the start of a 2 to 3 day counter-trend rally with a pivot at .6863 the next potential target.
Bearish Scenario
A sustained move under .6745 will signal the presence of sellers. This could lead to a retest of the low at .6711.
A trade through .6711 will negate the closing price reversal bottom and signal the resumption of the downtrend. This level is also a trigger point for an acceleration to the downside with the May 15, 2020 main bottom at .6402 a potential target.