On Wednesday, July 28, the Australian dollar continued to record its losses ahead of the country’s consumer price index release. The AUD/USD pair traded 0.07% lower to 0.7356 following Tuesday’s 0.26% fall to 0.7359.
Analysts anticipate Australia’s release of its consumer inflation figures as its second-quarter Headline CPI was 0.70% which is slightly higher than the first-quarter data of 0.60%.
Moreover, the trimmed mean CPI is being closely monitored since the Reserve Bank of Australia will set its monetary policy based on this index. It has an estimated forecast of 0.50%, which is higher in comparison to the previous data of 0.30%.
Unlike the U.S. Federal Reserve, the central bank of Australia does not take the inflation rate as one of its most important concerns.
With the current implementation of pandemic curbs due to the continued surge in coronavirus cases, inflation still remains within RBA’s 2-3% range.
An expert said that the inflationary pressures do not seem to be on the rise, and unless the forecasts are well off target, he is expecting a muted reaction from the Aussie currency.
At the RBA’s last meeting this month, Governor Philip Lowe stated that the central bank would proceed on tapering its asset purchase program to AUD4 billion from AUD5 billion each. He added that this would begin in September, and a review will follow later in November.
By any means, this is not a huge reduction. However, it is an important hint to the markets that the RBA will now tighten its policy.
In addition, another analyst commented that this should continue as long as the Australian economy continues to do well.
USD Edged Higher
Furthermore, investors will eye the release of the FOMC policy decision later in the day since the USD has been under some pressure lately.
However, there are worries that the Fed could show a hawkish stance. The fear is that they will announce a tapering that will keep the traders at bay until the meeting ends.
An analyst said that if the U.S. central bank sounds dovish, the greenback could face some headwinds later this week.
The U.S. Dollar Index trails the greenback in opposition to its six other rival currencies. This week, it inched up 0.10% to 92.493 though it retreated from its 3½ month high of 93.194 last week.
Moreover, the EUR/USD and the USD/CNY plummeted 0.12% to 1.1810 and 0.10% to 6.5036, respectively.
On the other hand, the USD/JPY pair traded 0.10% higher to 109.87, while the GBP/USD was flat at 1.3876.