The AUD/USD exchange rate experienced a decline following the release of consumer inflation data from the Australian Bureau of Statistics, which fell short of expectations. It declined to 0.7135, a decrease from the year-to-date peak of 0.7278. It also retreated amid increasing concerns regarding the US-Iran agreement aimed at concluding the conflict. The AUD/USD pair exhibited a cautious stance following the release of the latest consumer inflation data by the ABS. This report indicated that the trimmed and weighted mean inflation increased by 3.3% and 3.5% in April of this year. The headline CPI decreased to 4.2%, down from the prior figure of 4.6%.
Australia’s inflation continues to exceed the RBA’s target range of 2% to 3%. However, as the growth fell short of expectations, it is likely that the Reserve Bank of Australia will keep interest rates steady in the June 16 meeting. The bank’s caution stems from the recent jobs report, which indicated a decline in employment in April, accompanied by an increase in the unemployment rate. This elucidates the rationale behind the retreat in Australia’s bond yields, with the ten-year adjusting to 4.89%. The two-year yield has decreased to 4.57%. The forthcoming US inflation report will serve as a significant catalyst for the AUD/USD pair. Economists anticipate that the forthcoming report will indicate a rise in the headline Personal Consumption Expenditure to 3.8% in April, up from the prior figure of 3.5%.
Core CPE, excluding the volatile food and energy prices, is projected to be 3.3%. The PCE report holds significance as it serves as the Federal Reserve’s preferred measure of inflation, encompassing price fluctuations across both urban and rural regions. A higher-than-expected inflation report will result in a more hawkish Federal Reserve. The pair will also respond to any new developments regarding the ongoing discussions between the US and Iran. Indicators of an agreement will likely be favourable for the pair, as it is expected to increase demand for the Australian dollar.
The daily chart indicates that the AUD/USD pair has experienced a pullback in recent weeks, declining from a peak of 0.7278 in May to 0.7135 at present. Still, despite this retreat, the pair has found support at the 50-day Exponential Moving Average. Most importantly, it has formed an inverted head-and-shoulders pattern, a prevalent indicator of a bullish reversal. It is currently developing the right shoulder of this pattern. Consequently, the pair is expected to rebound in the short term, potentially reaching the resistance level at 0.7250. A decline beneath the support level of 0.7075 will negate the optimistic perspective.