AUD/USD. Waiting for increased volatility: the inflation report will trigger price turbulence for the pair
June 27, 2023 1:22 pm
Today, the Australian dollar against the US dollar attempted corrective growth after a prolonged downward trend. In mid-June, the Australian dollar tested the 69 figure but quickly retreated under pressure from the greenback. Within a week, the Australian dollar lost over 200 points, with buyers of AUD/USD again far from the key price barrier of 0.7000. Today’s corrective growth also quickly dissipated as the Australian dollar failed to overcome the resistance level of 0.6720 (the middle line of the Bollinger Bands indicator on the daily chart), retreating to the 66 figure.
Why the inflation report matters
Looking at the weekly AUD/USD chart, we can see that the pair demonstrated a clear upward trend for three weeks (from the end of May to mid-June), driven by the hawkish decisions of the Reserve Bank of Australia (RBA). Recall that after a pause in April, the RBA raised the interest rate twice, contrary to market forecasts of maintaining the status quo. The latest meeting of the Australian regulator also took place in a hawkish tone, with the accompanying statement indicating transparent hints of a possible rate hike at one of the upcoming meetings. Such conclusions helped strengthen the Australian dollar, including against the greenback.
However, the published minutes of the June meeting disappointed AUD/USD buyers. It turned out that the Reserve Bank considered two scenarios: a 25-point rate hike and keeping the rate unchanged. According to the document, the arguments in favor of the 25-point scenario were “finely balanced” but “more persuasive.”
In other words, despite the RBA’s decision to raise rates in June, preceding debates revealed to traders that the regulator might decide to pause at the July meeting.
Nevertheless, it cannot be ignored that in the text of the final communique of the June meeting, RBA members acknowledged that the central bank may require additional “tightening” of monetary policy in the future as the upward risks to the inflation forecast have “increased significantly.” Essentially, the central bank tied its further actions to the dynamics of inflation growth, not ruling out another round of rate increases at one of the upcoming meetings. That is why the inflation report in Australia, which will be published on Wednesday, June 28th, may provoke increased volatility for the AUD/USD pair, either in favor of the Australian dollar or against it.
Forecast and consequences
The previous report came out in the “green zone,” thereby strengthening hawkish expectations regarding the RBA’s future actions (and these expectations were subsequently justified). Instead of the projected decline to 6.1%, the consumer price index in April rose to 6.8%. Tomorrow, we will learn the May value of the indicator. According to preliminary forecasts, the index will decrease to 6.0% in May. Such a result will pressure the Australian dollar, significantly reducing the likelihood of a rate hike at the July meeting. Non-farm payroll data also supports maintaining the status quo. According to the latest published data, the unemployment rate in Australia rose to 3.7% (with a forecast increase of 3.5%). The employment change indicator in April decreased by 4,000, while most experts predicted an increase of nearly 30,000 (this indicator entered negative territory for the first time since January this year).
If inflation repeats the “trick” of the previous month and shows a growth of around seven percent instead of declining to 6.0%, AUD/USD buyers can mount a counterattack to the upside. After all, in such a case, the intrigue around the July meeting will persist, and the market will once again speculate about a possible “hawkish surprise” from the RBA.
Remember that the next meeting of the Reserve Bank will take place in two weeks (July 12th), so tomorrow’s release will be of great importance for the Australian currency. If doubts about the pause at the July meeting intensify, the southward trend in the AUD/USD pair will likely resume with renewed strength. A “green coloring” of the inflation release will allow the Australian dollar to stay afloat.
From a technical standpoint, the pair on the daily chart is in the Kumo cloud, between the Tenkan-sen and Kijun-sen lines, and on the middle line of the Bollinger Bands indicator. Such a configuration indicates an uncertain situation. Considering short positions is advisable only after AUD/USD buyers surpass the 0.6650 level – in such a case, the Ichimoku indicator will form a bearish “Line Parade” signal. The target of the southward movement will be the 0.6530 level, which is the lower line of the Bollinger Bands on the D1 timeframe.
The material has been provided by InstaForex Company – www.instaforex.com
Today, the Australian dollar against the US dollar attempted corrective growth after a prolonged downward trend. In mid-June, the Australian dollar tested the 69 figure but quickly retreated under pressure from the greenback. Within a week, the Australian dollar lost over 200 points, with buyers of AUD/USD again far from the key price barrier of 0.7000. Today’s corrective growth also quickly dissipated as the Australian dollar failed to overcome the resistance level of 0.6720 (the middle line of the Bollinger Bands indicator on the daily chart), retreating to the 66 figure.
Why the inflation report matters
Looking at the weekly AUD/USD chart, we can see that the pair demonstrated a clear upward trend for three weeks (from the end of May to mid-June), driven by the hawkish decisions of the Reserve Bank of Australia (RBA). Recall that after a pause in April, the RBA raised the interest rate twice, contrary to market forecasts of maintaining the status quo. The latest meeting of the Australian regulator also took place in a hawkish tone, with the accompanying statement indicating transparent hints of a possible rate hike at one of the upcoming meetings. Such conclusions helped strengthen the Australian dollar, including against the greenback.
However, the published minutes of the June meeting disappointed AUD/USD buyers. It turned out that the Reserve Bank considered two scenarios: a 25-point rate hike and keeping the rate unchanged. According to the document, the arguments in favor of the 25-point scenario were “finely balanced” but “more persuasive.”
In other words, despite the RBA’s decision to raise rates in June, preceding debates revealed to traders that the regulator might decide to pause at the July meeting.
Nevertheless, it cannot be ignored that in the text of the final communique of the June meeting, RBA members acknowledged that the central bank may require additional “tightening” of monetary policy in the future as the upward risks to the inflation forecast have “increased significantly.” Essentially, the central bank tied its further actions to the dynamics of inflation growth, not ruling out another round of rate increases at one of the upcoming meetings. That is why the inflation report in Australia, which will be published on Wednesday, June 28th, may provoke increased volatility for the AUD/USD pair, either in favor of the Australian dollar or against it.
Forecast and consequences
The previous report came out in the “green zone,” thereby strengthening hawkish expectations regarding the RBA’s future actions (and these expectations were subsequently justified). Instead of the projected decline to 6.1%, the consumer price index in April rose to 6.8%. Tomorrow, we will learn the May value of the indicator. According to preliminary forecasts, the index will decrease to 6.0% in May. Such a result will pressure the Australian dollar, significantly reducing the likelihood of a rate hike at the July meeting. Non-farm payroll data also supports maintaining the status quo. According to the latest published data, the unemployment rate in Australia rose to 3.7% (with a forecast increase of 3.5%). The employment change indicator in April decreased by 4,000, while most experts predicted an increase of nearly 30,000 (this indicator entered negative territory for the first time since January this year).
If inflation repeats the “trick” of the previous month and shows a growth of around seven percent instead of declining to 6.0%, AUD/USD buyers can mount a counterattack to the upside. After all, in such a case, the intrigue around the July meeting will persist, and the market will once again speculate about a possible “hawkish surprise” from the RBA.
Remember that the next meeting of the Reserve Bank will take place in two weeks (July 12th), so tomorrow’s release will be of great importance for the Australian currency. If doubts about the pause at the July meeting intensify, the southward trend in the AUD/USD pair will likely resume with renewed strength. A “green coloring” of the inflation release will allow the Australian dollar to stay afloat.
From a technical standpoint, the pair on the daily chart is in the Kumo cloud, between the Tenkan-sen and Kijun-sen lines, and on the middle line of the Bollinger Bands indicator. Such a configuration indicates an uncertain situation. Considering short positions is advisable only after AUD/USD buyers surpass the 0.6650 level – in such a case, the Ichimoku indicator will form a bearish “Line Parade” signal. The target of the southward movement will be the 0.6530 level, which is the lower line of the Bollinger Bands on the D1 timeframe.
The material has been provided by InstaForex Company – www.instaforex.com
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