Australian Dollar remains tepid after soft China’s CPI inflation

• The Australian Dollar depreciates as the US Dollar gains ground after Fed Chair Powell’s testimony before the US Congress on Tuesday.
• China’s CPI declined by 0.2% in June, compared to a 0.1% decline in May.
• Fed Chair Powell emphasized that a rate cut is not appropriate until the Fed gains confidence that inflation is moving toward 2%.

The Australian Dollar (AUD) losses its recent gains on Wednesday. The drop in the AUD/USD pair is due to the strengthening of the US Dollar (USD) following Federal Reserve (Fed) Chairman Jerome Powell’s testimony before the US Congress on Tuesday. Despite acknowledging improving inflation figures, the Fed remains firmly cautious.

China’s Consumer Price Index (CPI) rose at an annual rate of 0.2% in June, down from a 0.3% rise in May. The market had forecasted a 0.4% increase for the period. On a monthly basis, Chinese CPI inflation declined by 0.2% in June, compared to a 0.1% decline in May, which came in below the expected decline of 0.1%.

Traders are anticipating the second semi-annual testimony by Fed Chair Jerome Powell, as well as speeches by the Fed’s Michelle Bowman and Austan Goolsbee. Additionally, attention will be on the US Consumer Price Index (CPI) data, set to be released on Thursday.

Market forecasts generally predict that the annualized US core CPI for the year ending in June will remain steady at 3.4%, while headline CPI inflation is expected to increase to 0.1% month-over-month in June, compared to the previous flat reading of 0.0%.

Daily Digest Market Movers: Australian Dollar declines due to hawkish remarks from Fed’s Powell

• Fed Chair Jerome Powell answered questions before the Senate Banking Committee on the first day of his Congressional testimony on Tuesday. Powell stated, "More good data would strengthen our confidence in inflation." He emphasized that a "policy rate cut is not appropriate until the Fed gains greater confidence that inflation is headed sustainably toward 2%." He also noted that "first-quarter data did not support the greater confidence in the inflation path that the Fed needs to cut rates."
• Australia’s 10-year government bond yield hold steady at around 4.4% as investors digest mixed domestic data. Consumer sentiment fell in July following a rise in June, reflecting household concerns over persistent inflation and the potential for further interest rate increases by the Reserve Bank of Australia (RBA). Meanwhile, business confidence rose to its highest level since January 2023.
• Australia's Westpac Consumer Confidence dropped by 1.1% in July, reversing the 1.7% increase seen in June. This marks the fifth decline in 2024, driven by ongoing worries about high inflation, elevated interest rates, and a sluggish economy.
• US Nonfarm Payrolls (NFP) increased by 206,000 in June, following a rise of 218,000 in May. This figure surpassed the market expectation of 190,000.
• The US Unemployment Rate edged up to 4.1% in June from 4.0% in May. Meanwhile, Average Hourly Earnings decreased to 3.9% year-over-year in June from the previous reading of 4.1%, aligning with market expectations.

Technical Analysis: Australian Dollar hovers around 0.6750

The Australian Dollar trades around 0.6740 on Wednesday. The analysis of the daily chart shows that the AUD/USD pair consolidates within an ascending channel, indicating a bullish bias. Additionally, the 14-day Relative Strength Index (RSI) remains above the 50 level, confirming the bullish momentum.

The AUD/USD pair may test the upper boundary of the ascending channel at approximately 0.6775. If it breaks through this level, the pair could aim for the psychological level of 0.6800.

On the downside, the AUD/USD pair may find support around the lower boundary of the ascending channel at 0.6670, with additional support near the 50-day Exponential Moving Average (EMA) at 0.6642. A break below this level could push the pair toward throwback support around 0.6590.

AUD/USD: Daily Chart