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Title: AUD/USD eyes 0.6800 mark ahead of US CPI, upside potential seems limited

Jul 13, 2022 05:24 AM ET

By: AnalysisWatch

The AUD/USD currency pair followed the overnight rebound from the 0.6700 area, a more than two-year low, and moved higher for the second day in a row on Wednesday. The rise extended through the European session, lifting spot prices to a two-day high around the 0.6785 area in the final hour.

The US dollar oscillated in a narrow trading range below the two-year high it touched on Tuesday amid signs of stability in financial markets, which in turn provided support for the risk-sensitive Australian dollar. However, the rise lacked follow-through buying and threatened to fizzle out fairly quickly.

Growing concerns about a possible global recession should keep any optimistic move under wraps. In addition, expectations that the Fed will raise interest rates faster to combat rising inflation should continue to act as a headwind for the safe-haven USD and limit the upside of the AUD/USD pair.

It is worth recalling that the FOMC meeting minutes released last week indicated that another 50 or 75 bps rate hike is likely at the July meeting. Policymakers also stressed the need to fight inflation, even if it results in a slowing economy. The focus therefore remains on US consumer inflation data.

The headline US consumer price index, which will be released later during the start of the North American session, is expected to rise from 8.6% y/y in May to 8.8% y/y in June. A stronger than expected print will confirm the Fed's hawkish expectations and support the greenback, which in turn should put pressure on the AUD/USD pair.

Also from a technical perspective, spot prices have been in a downward channel for the past four weeks or so. This points to a well-established short-term bearish trend for the AUD/USD pair, suggesting that any subsequent move higher could still be seen as a selling opportunity.

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