- Aussie kicks off week on a soft note ahead of key data.
- Retail Sales and Inflation figures will guide market expectations.
- Economic concerns over China limit the Aussie’s upside.
The AUD saw a further decline against the USD on Monday as AUD/USD fell to 0.6545. Despite the expectations of a future rate hike by the Reserve Bank of Australia (RBA), issues with the local economy and Chinese economic woes persist, preventing any significant upward movement.
As the Australian economy shows signs of weakness, the persistent high inflation has prompted the Reserve Bank of Australia (RBA) to delay rate cuts. As per the current forecasts, the RBA stands to be among the last G10 nations to introduce a rate cut, potentially extending the gains of the AUD, but the economic concerns also push the currency down.
Daily digest market movers: Aussie looks weak ahead of Inflation and Retail Sales data
- The risk-off sentiment continues to dominate with Australia's economic climate being influenced by concerns over Chinese economic stress.
- This week, investors will be eyeing Australian June Q2 CPI data, due to be released on Wednesday.
- For Q2, the headline CPI is expected to match Q1's rise of 1.0% QoQ and accelerate to 3.8% YoY from 3.6% in Q1. Meanwhile, the June headline CPI is anticipated to fall to 3.8% YoY.
- With the inflation rate still above the 2-3% target range, the RBA is unlikely to rush toward a policy change. The swaps market predicts stability for the rest of the year with the first significant 25 bps cut expected next summer.
- Tuesday will also see Q2's Retail sales data release. Retail Sales volume is expected to show a less severe decline of 0.2% QoQ in Q2, compared to 0.4% in Q1.
AUD/USD Technical analysis: Bearish outlook underpins, the pair lies below major SMAs
The AUD/USD's movement below the 20,100 and 200-day Simple Moving Averages (SMAs) signals concern, indicating a probable persistence of the downward trend. In July, the pair recorded an extensive nine-day losing streak and fell nearly 3.50%.
Indicator signals are deeply entrenched in the negative, but the oversold scenario may stimulate a correction. However, the bulls' momentum remains weak, and technicals suggest a sideways trade period rather than an upsurge, barring any fundamental catalysts.
Key support levels line up at 0.6530 and 0.6500, while resistance levels lie at 0.6600 (200-day SMA), 0.6610 and 0.6630.
Interest rates FAQs
Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.
Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.
Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.
The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.
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