The Australian Dollar (AUD) strengthened for the second consecutive day, with the AUD/USD pair climbing to the 0.7170 area following the release of Australia's July Consumer Price Index (CPI) data. The Australian Bureau of Statistics reported a headline CPI increase of 3.5% year-over-year, which, while lower than June's 3.8%, exceeded the consensus estimate of 3.2% and left the door open for further policy tightening by the Reserve Bank of Australia (RBA) [1]. This data supported the AUD, pushing it close to its highest level since early June, as traders awaited the upcoming US Personal Consumption Expenditures (PCE) Price Index for further direction [1].
In contrast, the Canadian Dollar (CAD) weakened, with the USD/CAD pair edging higher during the Asian session, trading around the mid-1.3800s. The decline in crude oil prices, which hit a two-week low, weighed heavily on the commodity-linked Loonie. The drop in oil prices was attributed to optimism over a potential diplomatic resolution to the US-Iran conflict, as the US offered Iran sanctions relief and an end to the naval blockade in exchange for reopening the Strait of Hormuz and halting attacks by regional proxies [2]. Additionally, escalating trade tensions between the US and Canada further undermined the CAD, with Canada announcing new tariffs on US goods in retaliation for Washington's 50% tariffs on $20 billion worth of Canadian goods [2].
Both currency pairs were influenced by the US Dollar's (USD) performance, which remained subdued due to diminishing odds of an immediate rate hike by the Federal Reserve, declining US bond yields, and hopes for US-Iran diplomacy [1][2]. Tamer July US inflation data shifted market expectations toward a policy hold at the Fed's September 15–16 meeting [1][2]. A CNBC report indicated that the US Treasury could use nearly $1 trillion to fund increased buybacks of longer-term bonds, contributing to lower US bond yields and further weighing on the USD [1][2].
Technical analysis showed that AUD/USD maintained a constructive near-term bias, holding above the 100-period Simple Moving Average (SMA) at 0.7085, with buyers likely to defend this level [1]. Conversely, USD/CAD retained a bearish tone, trading below its 100-period SMA at 1.3912, with traders viewing this as a resistance level until a convincing break above occurs [2].
Looking ahead, both markets are awaiting the release of the US PCE Price Index for additional cues on the Federal Reserve's policy path, which could provide further impetus for both the AUD/USD and USD/CAD pairs [1][2].
CONCLUSION
The Australian Dollar gained on stronger-than-expected inflation data, supporting expectations for potential RBA tightening, while the Canadian Dollar weakened due to falling oil prices and escalating trade tensions with the US. Both currencies remain sensitive to upcoming US PCE data, which could influence future moves depending on its impact on Federal Reserve policy expectations.