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Market Watch: Australian Dollar Trends Defy Lower CPI Figures

Australian Dollar Trends Lower CPI

Track Australian Dollar trends amid unexpected CPI dips. Stay informed with our market analysis for valuable insights.

AUD/USD, NZD/USD Analysis

In a surprising turn of events, the Australian Dollar (AUD) demonstrated resilience despite experiencing its second consecutive monthly drop in inflation. Analysts delve into the market dynamics to understand the implications for key currency pairs, mainly AUD/USD and NZD/USD.

Australian CPI Declines in November, Easing Concerns

The latest data reveals a 4.3% rise in Australian inflation compared to last year’s period, narrowly avoiding the lowest increase in two years. Contributing factors include food prices and transport drops, primarily due to reduced fuel costs. While lower inflation for the second consecutive month seems optimistic, concerns arise in the services sector. Rent inflation accelerated to 7.1% from 6.6%, and electricity prices rose to 10.7%, posing challenges for the Reserve Bank of Australia (RBA).

Policymakers are closely monitoring services inflation as they aim for a repeat of the rising inflation observed between July and September. The RBA may face pressure to raise interest rates in November to counter persistent concerns in this domain.

Diverging from the inflation timelines of the US and other developed markets, Australia anticipates fewer rate hikes from the RBA in the current year. This expectation could support the local currency, with markets projecting a modest 50 basis points worth of cuts, potentially commencing in August.

Market Watch: Australian Dollar Trends Defy Lower CPI Figures

AUD/USD Price Action Pre-US CPI

Surprisingly, the Aussie dollar appreciated despite the lower Consumer Price Index (CPI) print. This pattern persisted in the hours leading up to the London session, even as the US dollar index (USD benchmark) traded slightly lower. Analysts closely monitor AUD/USD’s movements within the longer-term uptrend, noting shorter-term fluctuations. Intraday support at 0.6680 appears crucial ahead of the upcoming US CPI data. A hotter-than-expected print could lead to a breach of 0.6680, possibly testing the ascending trendline support. On the contrary, continued disinflation in the US might provide a temporary boost for the Australian dollar, enabling a partial recovery from recent losses.

AUD/NZD Tests Resistance Amid Broader Pattern

AUD/NZD has been navigating a broader narrowing pattern marked by periods of consolidation and trend shifts. Noteworthy trends are evident. However, as the narrowing pattern approaches its apex, the potential for extended moves diminishes without a significant catalyst. The Kiwi dollar, with its superior yield differential, has been less responsive to 10-year sovereign bond spreads. Both currencies remain influenced by economic challenges in China, making price action more susceptible to country-specific factors like net exports and overall market sentiment. Key levels to watch include the imminent resistance at 1.0740, followed by the 200 simple moving average (SMA). The upward-sloping trendline anchors the support.

Market participants are advised to monitor US equity sentiment, especially considering renewed optimism around the semiconductor/AI space, as it could influence the trajectory of AUD/NZD in the coming sessions.

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