The Australian Dollar (AUD) surged against the US Dollar (USD) on Tuesday, with the AUD/USD pair trading sharply higher near 0.6990 and approaching the key psychological level of 0.7000. This move was driven by weaker-than-expected US inflation data, which saw the US Consumer Price Index (CPI) decline by 0.4% month-over-month in June, compared to the anticipated 0.1% decrease and May’s 0.5% increase. On an annual basis, inflation slowed significantly to 3.5% from 4.2%, falling short of the market forecast of 3.8%. Core CPI remained unchanged for the month, while the annual underlying rate eased to 2.6% from 2.9%, also below expectations [1].
US employment data also showed signs of moderation, with the ADP Employment Change four-week average declining to 19.75K from 21K. These softer inflation and employment readings overshadowed relatively hawkish remarks from Federal Reserve Chair Kevin Warsh, who reiterated the Fed’s commitment to restoring price stability and stated that policymakers have 'no tolerance for persistently elevated inflation.' However, Warsh did not provide any clear guidance on the Fed’s next policy move, and he described the labor market as broadly stable, noting low unemployment, limited layoffs, and solid nominal wage growth [1].
Market participants are now turning their attention to upcoming economic releases from China, which could serve as the next catalyst for the Australian Dollar due to Australia’s close trade ties with China. Chinese GDP for the second quarter is expected to expand by 4.5% year-over-year, down from 5.0% in the first quarter, with quarterly growth forecast at 0.9% versus 1.3% previously. China’s June Retail Sales data will also be closely watched [1].
From a technical perspective, AUD/USD is trading at 0.6992 with a bullish near-term bias, well above both the 20-period SMA at 0.6944 and the 100-period SMA at 0.6926. The pair is testing immediate resistance at 0.6993, and the Relative Strength Index (RSI) at 66.8 indicates strong positive momentum, approaching overbought territory. Initial support is seen at 0.6970, with further support at 0.6959 and 0.6950, while a break above 0.6993 could pave the way for additional gains [1].
CONCLUSION
The Australian Dollar's sharp rally reflects market optimism following softer US inflation and employment data, which have weighed on the US Dollar. With technical indicators supporting further upside and attention shifting to key Chinese economic data, the AUD/USD pair remains in focus for potential continued gains.