Forex Market: AUD/USD extends rebound from recent lows ahead of US CPI data, Fed Powell’s testimony

AUD/USD edged higher on Tuesday, while extending a rebound from last week’s trough, ahead of the US CPI inflation report, which could provide clues over the timing of the Federal Reserve’s stimulus tapering and rate hikes.

Still, pandemic-related lockdown restrictions were limiting the Aussie’s upside.

“The worsening Covid-19 outbreaks in Sydney is keeping Australian dollar under pressure,” Commonwealth Bank of Australia strategists wrote in an investor note.

“Despite the recent pick-up in pace, Australia’s vaccination rate remains low. The risk is the current Sydney lockdown is extended and/or tightened and drags on the Australian economy.”

Meanwhile, the highly anticipated US consumer inflation report will be released at 12:30 GMT today. According to a Reuters poll, analysts on average expect the CPI to increase at a monthly rate of 0.5% in June and at an annual rate of 4.9%. A miss on either side could trigger volatility in the currency pairs containing the US Dollar as well as in the bond market, as it would affect interest rate expectations.

“My back-of-the-envelope playbook is that we’d need a headline year-on-year number north of 5.5% to really set this market ablaze,” Chris Weston, head of research at Pepperstone, was quoted as saying by Reuters.

Also on investors’ radar are upcoming appearances by Federal Reserve officials. Fed Chair Jerome Powell is scheduled to testify before Congress on Wednesday and Thursday, while other Federal Reserve officials, including Neel Kashkari, Raphael Bostic and Eric Rosengren, are to make speeches later on Tuesday.

As of 8:13 GMT on Tuesday AUD/USD was edging up 0.10% to trade at 0.7479, while moving within a daily range of 0.7472-0.7503. Last Friday the currency pair slipped as low as 0.7410, which has been its weakest level since December 9th 2020 (0.7405). The major currency pair has retreated 0.20% so far in July, following another 2.99% drop in June.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -16.47 basis points (-0.1647%) as of 8:15 GMT on Tuesday, down from -14.9 basis points on July 12th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7472
R1 – 0.7496
R2 – 0.7520
R3 – 0.7543
R4 – 0.7567

S1 – 0.7448
S2 – 0.7424
S3 – 0.7400
S4 – 0.7376