Food for RBA Hawks, Australia’s Inflation Hits 30-year High
AUD traders have a full day to forecast a turnaround in the economy after Australia reported higher-than-expected inflation of 6.1 percent for the second quarter. Rising inflation fueled a hawkish Reserve Bank of Australia (RBA), raising market expectations that there will be a 0.75 percent rate hike when the central bank meets in August.
Australia reports monthly retail sales tomorrow Thursday 28 July. The indicator is expected to fall to 0.5 percent in June from 0.9 percent in May, based on the assumption that consumers are more wary of high prices weighing on household budgets.
USD support and resistance drivers
USD traders face challenges from the opposite direction as the US Federal Reserve is expected to raise its rate forecast to 2.5% from 1.75% today. Higher interest rates can provide a pulling USD to underscore its strength. Potential volatility in the second quarter GDP figures on July 28 could lead to a decline in the USD if the world's largest economy enters a technical recession, as is widely expected.
Another factor for USD traders to consider is the benchmark June Durable Goods Orders, due for release later today. Durable goods orders are forecast to fall to minus 0.4 percent in June from 0.8 percent in May, reflecting the impact of higher inflation on household and business budgets. If the benchmark surprises to the upside, the USD could find more support. Economic conditions appear to be in a downward direction, which means further drag potential for the USD.
Another complex economic scenario surrounds the EUR when the Eurozone releases the preliminary Harmonized Consumer Prices Index (CPI) for July. EUR traders are already busy pricing in the impact of slower growth and the conflict in Ukraine. If the annual CPI benchmark drops to 8.1% from 8.2% as expected, it could support the EUR.
How do you read economic benchmarks?
Economic benchmarks can mean different things for forex trading depending on the trader's point of view. If you are bullish on a particular currency, you may take a long position based on the core belief that it will appreciate in value in the long run. A bearish approach to a particular currency could mean going short, in other words selling the currency in the belief that it will depreciate.
In the current state of push-and-pull economic conditions, traders must also learn to deal with volatility as one conflicting economic release follows another. A rise in interest rates can be bullish for a currency, but a decline in GDP can be bearish. In these volatile conditions, risk management and hedging techniques are important factors as benchmark readings and expectations may miss.
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This material does not contain, and should not be construed as, investment advice, investment recommendation, offer or solicitation of any transaction in any financial instrument. Please note that such trading analysis is not a reliable indicator of current or future performance as circumstances may change over time. Before making any investment decisions, you should seek advice from an independent financial advisor to ensure you understand the risks.