- The Australian dollar remains heavy and exchanges hands amidst a narrow range.
- Investors brace for the US Consumer Price Index for July.
- Better-than-expected Australian business confidence data capped further downside pressures.
The AUD/USD retraces from weekly highs, but trades in a choppy trading range as traders prepare for the US inflation report. That, alongside geopolitical tussles between China-Taiwan, after the visit of US House Speaker Pelosi and expectations of further Fed tightening, weighed on the mood.
At the time of writing, the AUD/USD is trading at 0.6965, below its opening price, after hitting a daily high at 0.6994. Nevertheless, buyers’ failure to pierce the 0.7000 figure exposed the major to selling pressure.
AUD/USD slides on risk-aversion
EU and US equities are registering losses. Last Friday’s solid US job report fueled expectations of a 75 bps Federal Reserve rate hike, which could happen if confirmed by inflation data. Estimations of headline inflation are at 8.7% YoY vs. 9% in June. The so-called core CPI, which excludes volatile items like food and energy, is foreseen at 6.1% YoY, a tick lower than June’s 6.2%.
Nevertheless, the greenback has been unable to capitalize on risk aversion. The US Dollar Index, a gauge of the buck’s value vs. a basket of rivals, sits at 106.189, down 0.18%. Contrarily, US bond yields are rising ahead of the US inflation report.
The Australian dollar remains bolstered by a better-than-expected China exports report. That, alongside Iron ore prices pushing to the upside, capped the AUD/USD from further losses. Meanwhile, the Australian NAB Business Confidence rebounded in July, bolstered by sales and profits. However, businesses reported rising costs in purchases and labor.
Geopolitics-wise could be harmful to the AUD/USD. With China’s military drills extending beyond their due date and breaching international waters, risks surrounding Taiwan keep investors uneasy. Further escalation might be positive for the US dollar and negative for the Australian dollar.
What to watch
The Australian economic calendar will feature Private House Approvals and Building Permits. On the US front, inflation readings, alongside further Fed-speaking after US CPI, will shed some light on the Fed’s next move.