AUD/USD jumps ahead of Australian inflation

• Australian inflation expected to slow in Q2
• US consumer confidence jumps
• AUD/USD rises sharply

The Australian dollar has gained ground on Tuesday. In the North American session, AUD/USD is trading at 0.6783, up 0.65%.

Australian inflation expected to decelerate

Australia releases the second-quarter inflation report on Wednesday. The consensus is expecting inflation to slow down to 6.2% y/y after a 7.0% print in the first quarter. The core trimmed mean measure of CPI, a key gauge of underlying inflation, is expected to fall from 6.6% to 6.0%.

The RBA will be keeping a close eye on the inflation data, which is the final key release ahead of the RBA decision on August 1st. Recent RBA decisions have been close calls and that could well be the case with the August decision. The money markets have priced in a 41% probability of a 0.25% rate hike, which would bring the cash rate to 4.35%. If inflation falls significantly as expected, the money markets will likely lower the probability of a rate hike in August.

Last week’s employment report reiterated that the labour market remains tight. The economy added 32,500 jobs in June, beating expectations, and unemployment remained at 3.5%. The strong labour market is driving inflation and complicating the RBA’s attempts to bring inflation back down to the 2% target.

US consumers more optimistic

The US Conference Board (CB) consumer confidence index rose in July to 117, up from 110.1 in June. This beat the consensus estimate of 110.5 and was the highest level since July 2021. Consumer expectations also rose significantly. The CB report attributed the boost in consumer confidence to falling inflation and the tight labour market. The CB noted that consumer expectations of a recession have eased compared to earlier in the year, but the CB still considers a recession as “likely” before the end of the year.

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AUD/USD Technical

• AUD/USD is testing resistance at 0.6767. Above, there is resistance at 0.6878
• 0.6687 and 0.6643 are providing support

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