Surging Australian Inflation, Dollar Strength Preceding Key Speeches

Over the last 18 months, Australia has experienced its most significant inflation in three decades; nevertheless, experts anticipate that a recession is improbable. Despite Australian inflation peaking at nearly 8% earlier this year, a series of rate hikes totaling 400 basis points since May 2022 have curbed the inflation rate to 6%. While this remains double the Reserve Bank of Australia's target range of 2% to 3%, the deceleration has prompted a pause in tightening measures.

Australia's major lenders, including NAB, have reported only minor increases in delinquent repayments, primarily due to consistently low unemployment rates. The return of immigration to pre-COVID-19 levels has led to a housing shortage, bolstering property prices.

An official government report predicts slower economic growth in Australia due to an aging population, straining the budget and raising national debt. The report addresses the impact of technology, climate change, renewable energy, and aged care on the economy over the next 40 years. While the current focus is on tackling the cost of living crisis without stoking inflation, future challenges involve adapting to shifts from globalization to fragmentation.

Government spending is forecasted to rise by 3.8 percentage points of GDP by 2063, with aging responsible for 40% of the increase, potentially leading to budget deficits after a recent surplus. Despite fiscal pressures, the report gives limited attention to tax reforms, and taxes are expected to shift due to changes in consumption patterns and economic growth.

In the financial realm, the anticipation of Fed Chair Jerome Powell's speech at the Jackson Hole Economic Policy Symposium has caused the dollar to strengthen across markets. Investors are eager for insights into the Federal Reserve's stance on interest rate hikes and its plans for maintaining high rates.

Despite expectations of a labor market downturn due to interest rate hikes, the number of Americans filing new claims for unemployment benefits has fallen for a second consecutive week. This unexpected resilience, along with a slowdown in inflation, has fueled optimism that the U.S. economy might avert a recession.

In the manufacturing sector, new orders for key U.S.-manufactured capital goods have risen modestly, indicating potential growth in business spending on equipment. Despite concerns about rising interest rates, the U.S. economy expanded at a 2.4% annualized rate in the second quarter, surpassing expectations. The combination of a slowdown in inflation and a strong job market has led economists to revise their GDP growth projections upward.

As a result, the data this week from both Europe and the U.S., which were softer than anticipated, have prompted investors to favor safer currencies like the U.S. dollar, dampening their appetite for riskier assets. Hence, it is anticipated that the Australian dollar will exhibit fluctuations within the specified range and could potentially gain strength over the US dollar, partly due to instances of buying the dip.

Data for Technical Analysis (5H) CFD AUD/USD

Resistance : 0.6425, 0.6430, 0.6436

Support : 0.6413, 0.6408, 0.6402

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 0.6403 - 0.6413 is touched, but the support at 0.6413 cannot be broken, the TP may be set around 0.6426 and the SL around 0.6398, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6425 - 0.6435, TP may be set around 0.6443 and SL around 0.6408, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6425 - 0.6435 is touched, but the resistance at 0.6425 cannot be broken, the TP may be set around 0.6409 and the SL around 0.6440, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6403 - 0.6413, TP may be set around 0.6392 and SL around 0.6430, or up to the risk appetite.       

Pivot Points Aug 25, 2023 02:37AM GMT

Sources: Investing 1, Investing 2