Australian dollar edges higher overnight amid weak us data and rising inflation focus
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Daily Currency Update
Overnight, the Australian dollar (AUD) edged slightly higher against the U.S. dollar (USD), rising approximately 0.11% to trade around USD 0.6474 by early morning. The modest gain was primarily driven by renewed weakness in the greenback, following the release of softer-than-expected U.S. economic data—including a dip in consumer confidence and signs of a cooling labor market. These developments strengthened expectations that the Federal Reserve may begin easing interest rates in the coming months, a shift that typically weighs on the USD while supporting risk-sensitive currencies like the AUD. The Australian dollar also drew some support from stable commodity prices—particularly iron ore and gold—which are vital to the country's export-driven economy. However, upside was limited as global investors remained cautious ahead of key inflation data in both economies, and persistent concerns around China’s economic outlook continued to dampen broader risk sentiment. Overall, the AUD’s overnight performance reflected a modest yet meaningful rebound, buoyed by shifting rate expectations and global market dynamics.Looking ahead to Wednesday, market focus turns to Australia’s Monthly Consumer Price Index (CPI) report for July, which offers a timely snapshot of inflation momentum. While the Reserve Bank of Australia (RBA) continues to favor the quarterly CPI for policy decisions, the monthly data is gaining importance in shaping near-term expectations. Inflation is forecast to rise to 2.3% year-on-year, up from 1.9% in June, potentially signaling a pickup in price pressures. A stronger-than-expected result could temper speculation of imminent rate cuts and lend further support to the AUD. Conversely, a softer print would likely reinforce market expectations for additional RBA easing later this year. While the AUD remains relatively stable for now, investor sentiment is still cautious amid ongoing concerns over China’s economic slowdown and broader global growth risks. Meanwhile, the U.S. dollar is attempting to recover as traders look ahead to key data releases later in the week, including Consumer Confidence, Core Personal Consumption Expenditures (PCE) inflation, and Weekly Initial Jobless Claims. Softer inflation readings and further signs of labor market cooling could bolster the case for a potential Fed rate cut as early as September.
Key Movers
The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against a basket of six major currencies, is showing signs of stabilization after recovering from earlier daily losses. During European trading hours on Tuesday, the index hovered around the 98.40 level, reflecting a cautious yet steady tone in the currency markets. The Greenback’s outlook remains broadly positive, buoyed by the appeal of US Treasury yields that continue to attract foreign capital into dollar-denominated assets. At the time of writing, the 2-year and 10-year US Treasury yields stand at 3.70% and 4.30%, respectively, offering competitive returns compared to other global fixed-income markets. This yield advantage is likely to sustain demand for the USD, as investors seek safe-haven assets amid ongoing global economic uncertainties and mixed signals from central banks worldwide. Consequently, the US Dollar may continue to appreciate in the near term, provided that the bond market remains favorable and geopolitical tensions persist.Meanwhile, the Dow Jones Industrial Average (DJIA) treaded water on Tuesday, moving within a narrow range as investors awaited meaningful data or news to spur renewed momentum. Global markets are bracing for the upcoming release of the US Personal Consumption Expenditures (PCE) Price Index, a key inflation gauge, due later this week. Expectations around potential Federal Reserve interest rate cuts will hinge heavily on whether the Fed continues to focus on weakening jobs data as a signal to ease policy. Recent economic indicators added complexity to the picture: US Durable Goods Orders declined by 2.8% in July, marking a sharper contraction than some anticipated, though still a smaller drop compared to June’s 9.4% plunge. The US Census Bureau noted that excluding the volatile transportation sector, new orders actually increased by 1.1%. However, when defense spending is excluded, new orders still fell by 2.5%. The most significant weakness in Tuesday’s data came from investment in transportation equipment, which plunged 9.7%, marking the third decline in this category over a four-month span. This uneven data underscores the cautious stance investors are taking as they await clearer signals on the economy’s direction and the Fed’s next moves.
Expected Ranges
- AUD/USD: 0.6400 - 0.6600 ▲
- AUD/EUR: 0.5500 - 0.5700 ▼
- GBP/AUD: 2.0700 - 2.0900 ▼
- AUD/NZD: 1.0950 - 1.1150 ▲
- AUD/CAD: 0.8900 - 0.9100 ▼