AUD/USD Rises as Post-CPI Bond Yield Drop Drags US Dollar

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Australian Dollar, AUD/USD, US CPI, ECB, Volatility -Talking Points

  • S&P 500 sees a new record-high close following a better-than-expected CPI print
  • Asia-Pacific markets likely to see upbeat trading given lack of market volatility
  • AUD/USD climbs above trendline resistance with a bullish SMA crossover in the works

Friday’s Asia-Pacific Outlook

Friday’s Asia-Pacific session looks on track for a higher open following an upbeat Wall Street trading session. Inflation in the United States rose above analysts’ expectations for May. The headline Consumer Price Index (CPI) crossed the wires at 0.6% , the highest print in more than ten years. On a year-over-year (YoY) basis, CPI rose 5.0% versus an expected 4.7%. The S&P 500 closed at a fresh record high.

However, markets have been hyper focused on central bank policy. That said, core inflation – a measure that strips out volatile items such as food and energy – crossed the wires at 3.8%, beating the forecasted 3.4% figure, according to the DailyFX Economic calendar. Treasury yields rose in the immediate aftermath, but rate traders moved back into government bonds, pushing the 10-year yield to the lowest mark since early March.

That said, earlier this week, Australia’s consumer inflation expectations rose to 4.4% from 3.5% the prior month. The data represents a broader theme across markets as consumers face rising prices, driven by rising prices at the factory gate. Major building materials, including copper, iron ore, and lumber, have all seen significant gains through the pandemic. The risk-sensitive Australian Dollar climbed overnight after the sharp turnaround in Treasury yields dragged the US Dollar.

The European Central Bank’s (ECB) released its June policy decision last night, with the European central bank publishing a new round of Staff Economic Projections. However, EUR/USD was largely unfazed on the news. The lack of reaction to the ECB meeting and the US inflation figures is surprising, but traders may feel comfortable with the amount of risk exposure at current levels. It may also be that markets are now more confident in the Fed’s transitory outlook on inflationary pressures in the economy.

AUD/USD Technical Outlook:

AUD/USD rose above its 38.2% Fibonacci level overnight, jumping from the 50-day Simple Moving Average (SMA). Price appears to have made a decisive break above trendline resistance, an area that has been pressuring the currency pair through this week. A bullish crossover above the 20-day SMA from the rising 50-day SMA appears to be on the cards in the coming days. Moreover, MACD looks to be gearing up to move above its signal line, a bullish sign.

AUD/USD Daily Chart

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Chart created with TradingView

Australian Dollar TRADING RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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