Australian Business Resilience Amid Inflation, US Dollar Rebounds

In July, the Australian business landscape remained robust, witnessing above-average sales, profits, and employment rates. However, there was a noticeable surge in labor costs and prices, indicating that inflationary pressures were still ongoing.

This rise in labor costs is likely attributed to mandated increases in minimum and award wages. Additionally, purchase costs experienced an uptick, driven by a substantial escalation in electricity prices. Moreover, quarterly growth in retail prices nearly doubled to 2.6%. This could potentially impact the upcoming official consumer price reading, especially considering the welcome reduction in inflation during the second quarter.

The Reserve Bank of Australia's decision to refrain from raising rates in its August policy meeting suggested its reliance on a continued slowdown in inflation. The central bank's hesitation to raise rates underscored concerns about the economic outlook, leading to a decline in Australian consumer sentiment in August.

A private survey revealed this deterioration, as worries about persistent inflation and worsening economic conditions overshadowed optimism about a potential end to the Reserve Bank's rate hikes. The bank's cautionary statement about the necessity of future rate hikes tempered the hope of a pause in rate increases. Many consumers surveyed still anticipated higher rates this year.

Despite a slight recovery in July, consumer sentiment remained close to the record lows observed during the 2020 COVID-19 pandemic, indicating a lack of significant improvement. The Reserve Bank of Australia further cautioned that economic activity would likely moderate throughout the year, with higher interest rates expected to endure, placing pressure on household savings and spending.

Turning to the international economic landscape, the US dollar rebounded, as investors digested US inflation data. The figures showed a moderate rise last month, although they remained significantly above the Federal Reserve's 2% inflation target.

The annual US inflation rate increased less than anticipated in July and maintained the same monthly pace, suggesting a potential easing in price pressures. This development could strengthen the argument for the Federal Reserve to deviate from its longstanding cycle of interest rate hikes.

An initial drop in the dollar occurred after the consumer price index (CPI) reported a 0.2% increase in the consumer price index (CPI) for the past month, which matched the rise seen in June. The CPI's year-on-year growth in July reached 3.2%, up from June's 3.0% increase, marking the smallest annual gain since March 2021.

Stripping out the volatile food and energy components, the core CPI also rose by 0.2% in July, mirroring the June increase. Over the twelve months through July, the core CPI expanded by 4.7%, following a 4.8% rise in June.

In a separate report, the Labor Department indicated that initial claims for state unemployment benefits rose by 21,000 to reach a seasonally adjusted 248,000 for the week ending August 5, surpassing economists' forecast of 230,000 claims for the week. Hence, it is anticipated that this would lead to an ascending pattern for the US currency, although it could exhibit some constraints in the near future. The potential for further appreciation remains viable in the medium run, attributed to the considerable disparity in yields between Australia and the US.

Data for Technical Analysis (5H) CFD AUD/USD

Resistance : 0.6531, 0.6538, 0.6548

Support : 0.6511, 0.6504, 0.6494

5H Outlook

Source: Investing.com 

Buy/Long 1 If the support at the price range 0.6501 - 0.6511 is touched, but the support at 0.6511 cannot be broken, the TP may be set around 0.6531 and the SL around 0.6496, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6531 - 0.6541, TP may be set around 0.6551 and SL around 0.6506, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6531 - 0.6541 is touched, but the resistance at 0.6531 cannot be broken, the TP may be set around 0.6503 and the SL around 0.6546, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6501 - 0.6511, TP may be set around 0.6486 and SL around 0.6536, or up to the risk appetite.       

Pivot Points Aug 11, 2023 02:24AM GMT

Sources: Investing 1, Investing 2