Mixed Economic Data Pressures Australian Dollar

The Australian Dollar (AUD) has edged lower against the US Dollar (USD) following the release of key economic data. On Thursday, the Australian Bureau of Statistics (ABS) reported a trade surplus of AUD 5,589 million for June, exceeding the forecasted AUD 5,000 million but falling short of the previous month’s figure of AUD 5,773 million. Despite the better-than-expected trade balance, the Australian Dollar faced downward pressure due to concerns over inflation and interest rates.

Key Economic Data Impacting the Australian Dollar

1. Australian Trade Surplus:

   • June’s trade surplus of AUD 5,589 million surpassed expectations but was lower than the prior month’s surplus of AUD 5,773 million.
   • Better-than-expected trade balance data was not enough to offset concerns over the Australian economy’s broader outlook.

2. Inflation and Interest Rates:

   • The latest inflation report indicated a slower annual CPI increase of 3.8% for June, down from May’s 4%.
   • Quarterly CPI rose 1% QoQ, with the RBA Trimmed Mean CPI at 3.9% YoY, aligning with expectations.
   • Reduced inflation pressures have led to lower expectations for another rate hike by the Reserve Bank of Australia (RBA).

3. RBA Rate Outlook:

   • Economists are now predicting a 50% chance of an RBA rate cut in November, much earlier than previous forecasts of April next year.
   • The possibility of rate cuts is adding pressure to the Australian Dollar.

4. China’s Economic Data:

   • China’s Caixin Manufacturing PMI for July fell to 49.8, missing the expected 51.5 and the previous 51.8 readings.
   • As China is a significant trade partner, weaker Chinese economic data negatively impacts the Australian market.

US Dollar and Federal Reserve Influence

• The US Dollar also faces challenges, with the Federal Reserve keeping rates unchanged in the 5.25%-5.50% range at its July meeting.
• Federal Reserve Chair Jerome Powell mentioned that a rate cut in September is possible, depending on labor market conditions.

Australian Dollar Technical Analysis

• The AUD/USD pair is trading around 0.6540, showing consolidation within a descending channel, which indicates a bearish trend.
• The 14-day Relative Strength Index (RSI) is near the oversold 30 level, suggesting a potential upward correction.

Support and Resistance Levels:

• Immediate Support: Lower boundary of the descending channel at 0.6500. A break below this level could see the pair testing the throwback support at 0.6470.
• Immediate Resistance: Upper boundary of the descending channel at 0.6555, followed by the throwback support turned resistance at 0.6575 and the nine-day Exponential Moving Average (EMA) at 0.6581.

A break above these resistance levels could propel the AUD/USD pair towards a six-month high of 0.6798.

Conclusion

The Australian Dollar is under pressure due to mixed economic data, with better-than-expected trade balance figures overshadowed by inflation concerns and the potential for RBA rate cuts. Market participants will continue to monitor upcoming US economic data, including ISM Manufacturing PMI and weekly Initial Jobless Claims, for further direction.

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