AUDUSD Retraces on Upbeat PPI Data, Renewing of Tapering Concerns

13 Aug 2021

AUDUSD gains from Wednesday’s CPI data was erased when the latest PPI report hinted that inflation may not be over just yet. Extended lockdowns in Australia continue to weigh on the pair.

Inflation may not be over just yet

Inflation data in the US has received much attention in the past few months as rising inflation fuel expectations on a sooner than expected interest rate hike by the Fed. Despite the higher than expected inflation pace from March to June, the Fed claimed that the inflation may be transitory and that it was caused by the supply bottleneck from the opening of economy. Core Consumer Price Index (Core CPI) for July which was released on Wednesday, printed an increase of only 0.3%, slowing down from 0.9% in previous month. Actual figure also diverged from the market consensus of 1.2%. This data that was seemingly aligned with Fed’s claim on a transitory inflation was invalidated on Thursday when the US Producer Price Index (PPI) for July rose past market expectations in all categories. Meanwhile, Australia’s Consumer Inflation Expectations eased below forecast and previous data.

Hawkish Fed

The higher than expected PPI data was solidified by hawkish remarks from Federal Reserve Bank of San Francisco President, Mary C. Daly, who commented to the Financial Times that tapering of asset purchases could start as soon as this year. Previously, Kansas City Fed President Esther George, Dallas Fed President Robert Kaplan and Richmond Fed President Thomas Barkin also expressed their hawkish views, calling for gradual and balanced bond tapering as soon as October this year.

Australia battles Delta variant

Technical Analysis

At the time of analysis, AUDUSD is consolidating within a sideways channel. The Relative Strength Index (RSI) paints a bearish bias picture with a reading below 50. However, a bullish divergence is in play with the RSI hitting high lows while the price creates lower lows. The configuration is mixed.

The immediate support traders could look out for is the lower band of the channel around 0.7317. If the price manages to pierce through this point, the next target shall be set at 0.722.

In the alternate scenario where the AUDUSD gains bullish momentum, the zone around 0.7410 and 0.74793 in extension would serve as strong resistance.

Key events to watch in the coming week:

Tuesday, 17 August

AUS – RBA Meeting Minutes
USA – Retail Sales m/m (July)

Wednesday, 18 August

USA – Building Permits (July), EIA Crude Oil Stocks Change (Aug 13)

Thursday, 19 August

AUS – Employment Change (July)

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