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The Australian dollar has posted considerable gains in Wednesday trade. Currently, AUD/USD is trading at 0.7471, up 0.33% on the day.

Australian Consumer Sentiment rebounds

The Westpac Consumer Sentiment index bounced back in July, after recording two straight declines. The 1.5% gain was modest, but was still impressive, given that the survey was taken when health restrictions were in effect in the states of New South Wales and Victoria. Consumer confidence has been closely linked to the Covid lockdowns, and if the present lockdown is short in duration, we can expect a stronger gain in the August release.

Australia releases the June employment report on Thursday (1:30 GMT). The consensus is for a modest gain of 30 thousand new jobs in June, after a stellar gain of 115 thousand in May. As well the unemployment rate is forecast to edge lower to 5.0%, down from 5.1%. If the actual readings are within expectations, I would expect the Aussie’s reaction to be muted.

Powell stays dovish, despite CPI surge

The Federal Reserve continues to maintain that higher inflation levels are transitory and that it plans to maintain its dovish policy stance. However, this position is becoming increasingly difficult to defend, especially in light of the latest surge in US consumer inflation. CPI for June jumped 5.4% and the core reading rose 4.5%, its highest level since 1991. The Fed recently adopted a more hawkish tone when it projected two rate hikes in 2023, but even that may not be enough for the markets.

Fed Chair Jerome Powell’s testimony, ahead of his appearance in the House later today, has no surprises and reiterates the central bank’s dovish stance. Powell said that the economy would have to show “substantial progress” before the Fed tapers stimulus and policymakers will discuss the issue in coming meetings. As for inflation, Powell acknowledged that inflation has risen sharply and said he expects it to remain at high levels in the coming months before easing. The takeaway for the markets is that the Fed remains committed to a dovish policy, despite the surge in inflation.

Will the markets buy into what Powell is selling?

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AUD/USD Technical

  • There is support at 0.7400. This line is weakening as AUD/USD is losing ground. Below, we find support at 0.7311
  • On the upside, there is resistance at 0.7589 and 0.7689

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-event