Aussie dollar shakes higher as market bets on Australian Fed rate hike

AUD/USD shook higher in Asia on Thursday (June 27), hitting a high of 0.6665, up about 0.27%. Stronger-than-expected Australian inflation data, the market on the Australian Federal Reserve rate hike bets surge, the Australian dollar is therefore boosted.

Strong Australian inflation data, rate hike expectations rise

Australia's monthly consumer price index (CPI) released on Wednesday showed that the annual inflation rate in May was 4%, higher than the 3.6% in April. This data suggests that inflationary pressures persist in Australia and that the Australian Federal Reserve may be forced to raise interest rates further.

Market bets on an Australian Fed rate hike have risen significantly. Cash rate futures and swaps are now forecasting a near 50% chance of a September rate hike by the RBA.

Rising consumer inflation expectations, uncertain outlook for AUD

Rising consumer inflation expectations could impact on Australian consumer confidence and spending patterns. With private consumption contributing more than 50% to the Australian economy, the RBA rate hike will depend on the next round of inflation data.

The future movement of the Australian dollar will depend on the monetary policy stance of the Australian Federal Reserve. If the Australian Fed continues to raise rates, the AUD could strengthen further.

Impact of Chinese Economic Indicators on the Australian Dollar

The impact of Chinese economic indicators on the Australian economy and the AUD cannot be ignored. China accounts for 1/3 of Australia's exports and Australia's trade accounts for over 50% of Gross Domestic Product (GDP).

China's profits from industrial enterprises above designated size fell from 4.3% to 3.4% in January-May, and from 4.0% to 0.7% in May. A deterioration in China's macroeconomic environment could impact demand, the Australian economy and the Australian dollar.

U.S. Economic Data to Influence Fed Rate Movements

U.S. economic data will influence the Federal Reserve's interest rate moves and, in turn, the AUD/USD exchange rate.

The release of US Initial Jobless Claims later on Thursday will be of interest to investors. Economists are forecasting that initial jobless claims will fall from 238,000 to 236,000 for the week ending June 22nd.

If the number of initial jobless claims fell more than expected, it may reduce investors' bets on the Federal Reserve to cut interest rates in September. Tighter labor market conditions could support wage growth and increase disposable income, which in turn could stimulate consumer spending and demand-driven inflation.

AUD/USD Technical Analysis

Bob Mason, Analyst at FXEmpire, said that AUD/USD remains firmly above the 50-day and 200-day EMAs, confirming the bullish price signal.

A break above $0.66500 could signal a move towards $0.67003 resistance.

A breakout of AUD/USD above the $0.67003 resistance level could send bulls charging towards $0.67500.

Conversely, if AUD/USD falls below the 50-day EMA, it could signal a move to the 200-day EMA and support at $0.65760.

With a 14-period daily RSI reading of 52.51, the Aussie could rise to $0.67500 before entering overbought territory.

Summarizing

AUD/USD near-term movement will depend on Australian and US inflation data. Weaker-than-expected US inflation data could lead to monetary policy divergence in favor of the Aussie. The monthly AUD CPI indicator raised investors' bets on an August rate hike by the Australian Federal Reserve.

Conversely, investor hopes for a September Fed rate hike may depend on the U.S. PCE inflation data to be released on Friday.