Softer-than-expected U.S. inflation this week cut the odds of a July Federal Reserve rate hike to just 10%, lifting AUD/USD. The pair consolidated Friday near 0.6990 after a sharp midweek rally, with traders eyeing support at 0.6970 and resistance at 0.7020.
Cooling U.S. price data has handed the Australian dollar a clear advantage. The market now prices in just a 10% chance of a July Fed rate hike, down sharply from 46% at the start of the week. That shift drove AUD/USD higher through midweek before the pair steadied on Friday.
Softer inflation resets rate expectations
The move began Tuesday, when the Bureau of Labor Statistics reported the consumer price index fell 0.4% in June, pulling annual inflation down to 3.5%. Economists had expected a smaller 0.2% monthly decline and a 3.8% annual print. Buying interest built further Wednesday after the producer price index also came in tamer than forecast, reinforcing the view that price pressures are easing.
The data cut the case for near-term tightening, but the outlook is not one-directional. The market still expects the Fed to lift rates twice before year-end, so Aussie traders are likely to face further volatility ahead.
Warsh stays quiet as the dollar softens
The rally drew added support from Federal Reserve Chairman Kevin Warsh, who gave little away on how the central bank plans to tackle elevated inflation. While acknowledging to lawmakers that prices remain too high, he offered no detail on what would trigger more hawkish action, and the dollar weakened as other Fed members spoke more openly about the outlook.
By Friday, though, the greenback ticked back up. AUD/USD traded marginally lower at around 0.6990 in European hours as the US Dollar Index edged 0.1% higher to near 100.80, with markets wary that inflation could re-accelerate.
Levels to watch
The pair holds a mildly bullish near-term bias while it stays above its 20-day exponential moving average at 0.6969. On the DailyForex read of the one-hour chart, initial support sits around 0.6970, with a deeper floor at 0.6960. A move above resistance at 0.7020 would open the door toward 0.7050. Traders now turn to Australian employment data due next week.
Sources: DailyForex, FXStreet
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