AUD/USD slumps 40 pips towards 0.6700 on downbeat Australia inflation, Fed Chair Powell’s speech eyed

• AUD/USD nosedives after downbeat prints of Australia inflation.
• Aussie Monthly CPI matches 5.4% YoY forecasts for June but quarterly CPI, RBA Trimmed Mean CPI for Q2 disappoint.
• Challenges to sentiment prod Aussie pair buyers after a two-day uptrend.
• With Fed’s 0.25% rate hike priced in, Powell’s speech will be crucial for clear directions.

AUD/USD stands on slippery grounds while marking a quick 45-pip fall after the Aussie inflation data marked disappointment on early Wednesday. Adding strength to the bearish bias could be the shift in the market sentiment ahead of the Federal Reserve (Fed) monetary policy meeting, as well as recently downbeat headlines from China.

Talking about the Aussie inflation numbers, the headline Consumer Price Index (CPI) for the second quarter (Q2) of 2023 drops to 0.8% QoQ versus 1.0% expected and 1.4% prior while the Reserve Bank of Australia (RBA) Trimmed Mean CPI came in as 1.0% compared to 1.1% market forecasts and 1.2% prior for the said period. Further, the Monthly CPI matches 5.4% analysts’ expectations for June versus 5.6% prior.

Also read: Breaking: Australia’s CPI inflation declined to 0.8% in Q2 vs. 1.0% expected

Earlier in the day, news suggesting the fresh US-China tensions joined the pre-Fed consolidation to weigh on the AUD/USD price. That said, Reuters reports that US 100-member Senate backed the amendment to the National Defense Authorization Act (NDAA) by 91 to 6. This means that the policymakers back legislation requiring US companies to report investment in China technologies like semiconductors and artificial intelligence (AI).

It’s worth observing that the Aussie pair rallied the most in two weeks the previous day after the upbeat statements from China Communist Party's Politburo meeting and China state planner National Development and Reform Commission (NDRC) signaled more stimulus from Beijing and bolstered the sentiment.

Also previously adding strength to the AUD/USD upside, as well as favoring the risk-on mood, could be the downbeat statistics from the major economies which flag the end of the rate hike trajectory at the key central banks. Furthermore, the International Monetary Fund’s (IMF) upward revision to the global growth forecasts also favored the risk-on mood and the pair prices. Furthermore, Reuters’ news stating China state banks’ defense of the Yuan (CNY), by selling the US Dollar, also seemed to have fuelled the pair prices.

On the other hand, most US data came in positive but failed to impress the DXY bulls. That said, the US Conference Board (CB) Consumer Confidence jumped to 117.0 for July from 110.10 prior (revised) versus market forecasts of 112.10. The survey details unveiled that the one-year consumer inflation expectations edged lower to 5.7% while the Present Situation Index and  Consumer Expectations Index rose to 160.0 and 88.3 in that orders for the said month. That said, the US Housing Price Index for May reprinted the 0.7% MoM growth compared to analysts’ estimation of 0.2% whereas the S&P/Case-Shiller Home Price Indices also repeated the -1.7% YoY figures for the said month versus -2.2% expected.

Against this backdrop, S&P500 Futures print mild losses even as Wall Street benchmarks closed on the positive side for the second consecutive day. That said, the US 10-year Treasury bond yields rose to the highest levels in three weeks before ending Tuesday’s trading near 3.89%.

Having witnessed the initial market reaction to Australian inflation, the AUD/USD pair traders may keep their eyes on the risk catalysts for clear directions. However, the cautious mood ahead of the Federal Open Market Committee (FOMC) monetary policy meeting announcements may restrict the Aussie pair’s momentum. It should be noted that the talks of the US central bank’s 0.25% rate hike are loud and clear and hence comments from Fed Chairman Jerome Powell will be crucial to watch for clear directions.

Also read: Federal Reserve Preview: Powell can play three distinct cards, each with a different US Dollar move

Technical analysis

AUD/USD pair’s repeated failures to provide a daily closing beyond a one-week-old descending resistance line, around 0.6800 by the press time, as well as the double tops near the 0.6900 round figures, keep the bears hopeful amid sluggish MACD and RSI signals.

However, a convergence of the 21-DMA and 200-DMA puts a floor under the Aussie price around 0.6730-25.