Aussie edges higher despite lukewarm confidence data, US inflation next

• Australian consumer confidence holds steady, business confidence falls
• US inflation expected to ease
• Inflation release could be a game-changer for Fed decision on Wednesday

The Australian dollar remains on a roll and is trading at 0.6775, up 0.35% on the day. The Aussie has been a tear in June, surging 4.15% against the US dollar.

Australia released lukewarm confidence data today, but that didn’t put a crimp in the Australian dollar’s upswing, which has continued for a fourth straight day. Westpac Consumer Confidence posted a small 0.2% gain in June, after a 7.9% plunge in May. The index remains at weak levels as consumers have been hammered by the cost-of-living crisis and high interest rates.

The NAB Business Confidence Index slipped into negative territory in May with a reading of -4. This was below the April reading and consensus of zero. Business conditions also weakened in May. The business sector is concerned that the RBA’s aggressive rate policy may not achieve a soft landing and economic conditions will deteriorate.

All eyes on US inflation

After a light data calendar on Monday, the week gets busy with the US inflation report today and the FOMC rate decision on Wednesday.

US inflation has been heading lower, and the trend is expected to continue in the May report. Headline CPI is projected to fall from 4.9% to 4.1% and core CPI is expected to ease from 5.5% to 5.3%. The Fed’s tightening policy has succeeded in pushing inflation lower, but the question is whether the Fed feels that inflation is dropping fast enough.

Market rate pricing has been swinging wildly for weeks, as expectations of a pause in rates switched to a hike and back to a pause. Currently, the markets have priced in a pause at 75%, with an outside chance of a rate hike. Today’s inflation release could be a game-changer if it is hotter than expected, as that could convince the Fed to increase rates on Wednesday. If the Fed decides to stay on the sidelines, we could end up with a “hawkish skip” in which the Fed takes a breather but signals that more rate hikes are coming in the second half of the year.

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AUD/USD Technical

• AUD /USD is putting pressure on resistance at 0.6804. Next, there is resistance at 0.6863
• 0.6691 and 0.6632 are providing support

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