Australian Dollar Talking Points
AUD/USD[1] may face range-bound conditions over the remainder of the month amid the failed attempt to break the July-low (0.7311), but fresh data prints coming out Australia may shift the near-term outlook for the exchange rate as the headline reading for inflation is expected to pick up in the second-quarter of 2018.
AUD/USD Outlook Hinges on Australia Consumer Price Index (CPI)
Updates to the Consumer Price Index (CPI) may boost the appeal of the Australian dollar[2] as the headline reading is expected to approach the Reserve Bank of Australia’s (RBA) inflation target of 2-3%, and signs of heightening price pressures may put pressure on the central bank to lift the official cash rate (OCR) off of the record-low as ‘recent data on the Australian economy continue to be consistent with the Bank's central forecast for GDP growth to average a bit above 3 per cent in 2018 and 2019.’
However, a below-forecast CPI print paired with the threat of a trade war[3] between the U.S. and China, Australia’s largest trading partner, may keep the RBA on the sidelines as ‘one uncertainty regarding the global outlook stems from the direction of international trade policy in the United States,’ and Governor Philip Lowe & Co. may merely attempt to buy more time at the next meeting on August 7 as ‘household income has been growing slowly and debt levels are high.’
With that said, the RBA’s wait-and-see approach for monetary policy may continue to instill a long-term bearish outlook for AUD/USD especially as the Federal Open Market Committee[4] (FOMC) appears to be on course to deliver four rate-hikes in 2018,
