FX.co ★ AUD/USD. Australia's inflation data did not support the Australian dollar

The AUD/USD pair continues to trade in a narrow price range of 0.7330-0.7400. For the second week, the pair is starting from the borders of this range, allowing it to enter sales at the borders of the 0.74 level and open longs when approaching the base of the 0.73 level. In general, the Australian dollar is showing a flat while waiting for this week's main event – the announcement of the results of the Fed meeting. In light of this, even the inflation release, which was published during the US session on Wednesday, did not impress AUD/USD traders. After a short-term price surge, the pair reversed and rushed to the lower limit of the above range. The Australian dollar is still under the background pressure of many fundamental factors and cannot take the lead. Therefore, the vector of the AUD/USD movement is determined by the US currency, which is also waiting for the Fed's decision.

It is also worth noting that Australia's inflation showed a good result today. The overall consumer price index in the second quarter increased by 0.8% (in quarterly terms), while experts expected to see this indicator slightly lower, at around 0.5%. In annual terms, growth was also recorded: the CPI surged to 3.8% in the second quarter after rising to 1.1% in the first quarter, updating a long-term record. The same dynamics were demonstrated by core inflation – all components came out at the level of forecasts, indicating the strongest growth.

The AUD/USD pair surged to the level of 0.7380 immediately after the release. However, the upward impulse faded as soon as it began, and even a small price increase attracted the sellers of the pair, who made a reversal and directed it to the base of the 73rd mark. However, the downward impulse similarly faded after a few hours – the pair drifted again, reflecting the indecision of both bears and bulls AUD/USD.

There are several reasons why traders are so weak. First, the current danger for the dollar pairs in the form of the Fed's July meeting whose results will be announced today at the end of the US trading session. It is still unknown whether Jerome Powell will tighten his rhetoric, whether he will hint at an early curtailment of QE, and whether he will react accordingly to the three-month record increase in the US inflation. There are only assumptions of experts, which sometimes diametrically contradict each other. Therefore, it is now impossible to say with certainty whether the US dollar will be supported tonight. A high degree of uncertainty does not allow traders to open large positions, both in favor of the dollar and against it.

The second one is the RBA. It can be recalled that the July meeting of the Australian regulator was "dovish". The members of the Central Bank made it clear that we should not expect a tightening of the parameters of monetary policy in the next three years. According to the RBA, the economy will reach compliance with the conditions necessary for a rate increase not earlier than 2024. On the one hand, the regulator noted that the recovery in the labor market is taking place at a faster than expected pace, but on the other, he pointed to weak wage growth rates. As for the prospects for QE, the regulator indicated that the Central Bank will adhere to a flexible approach to increasing or reducing the size of weekly bond purchases on the wave of high level of uncertainty regarding the prospects for the economy in the future.

This remark correlates with the epidemiological situation in Australia. The last RBA meeting was held even before the introduction of quarantine restrictions by the authorities of the largest states of the country. According to the latest estimates, the new lockdown costs Australia $ 300 million a day, significantly slowing the recovery of the labor market in particular and the economy as a whole. And just today, it became known that the authorities of the Australian state of New South Wales, whose capital is Sydney, are extending the lockdown of Sydney and its suburbs for a month until August 28. Quarantine restrictions also apply in the largest states of the country – in Victoria and South Australia. In total, about half of the 25 million population is in isolation. At the same time, the vaccination campaign is being implemented extremely slowly: to date, only 11% of citizens have been vaccinated.

Therefore, the notorious "coronavirus factor" leveled the optimism associated with an increase in inflation in the country. Given the new lockdowns in the largest states of the country, it can be assumed that the next releases in the labor market and inflation will come out in the "red zone", reflecting the slowdown in the recovery process.

Despite the fundamental background that is unfavorable for the AUD/USD pair, short positions on the pair now look risky. Before the announcement of the results of the July Fed meeting, it is best to take a wait–and–see position, since increased volatility is expected tonight, not only for the AUD/USD pair but also for all dollar pairs. However, sales will be a priority in the medium term, given Australia's epidemiological situation, the pace of vaccination in the country, and the RBA's "dovish" position. The initial target of the downward movement is the level of 0.7300 (the lower line of the Bollinger Bands indicator on the daily chart). If the bears push through this level, then the next target will be the level of 0.7200 – this is the average line of the Bollinger Bands, which coincides with the lower border of the Kumo cloud on the monthly time frame.