The US Dollar Strengthens After Inflation Data: AUD/USD and USD/CAD at Key Levels

The US dollar strengthened against commodity currencies following the release of July US inflation data. The annual Consumer Price Index (CPI) came in at 3.4%, exactly in line with forecasts and down from the previous 3.5%, while prices rose by 0.1% month-on-month. Core inflation also matched expectations, at 0.2% month-on-month and 2.5% year-on-year. Despite the continued easing in price pressures, the report did not deliver any additional disinflationary surprise to the market. Inflation is gradually moving towards the Fed’s target, but the current pace of decline is still insufficient to significantly strengthen expectations of an imminent easing of monetary policy. Against this backdrop, the US dollar managed to recover some of its earlier losses.

USD/CAD

In USD/CAD, a bullish engulfing pattern is forming after a test of the key support level around 1.3900. Technical analysis of USD/CAD points to the possibility of a move higher towards 1.3980–1.4000. A break below yesterday’s low could trigger a resumption of the downtrend, with potential targets in the 1.3770–1.3840 area.

Key events for USD/CAD:

• today at 15:30 (GMT+3): US Producer Price Index (PPI);
• today at 15:30 (GMT+3): US initial jobless claims;
• today at 15:40 (GMT+3): speech by Thomas Barkin, member of the US Federal Open Market Committee (FOMC).

AUD/USD

AUD/USD buyers attempted to test the key resistance level around 0.7100 today. The attempt failed, with the price retreating sharply from the level and forming a doji pattern. The appearance of a doji near resistance indicates buyer indecision and increases the likelihood of a corrective decline towards 0.7020–0.7040. The bearish scenario would be invalidated by a firm break and close above 0.7100.

Key events for AUD/USD:

• tomorrow at 02:30 (GMT+3): speech by Reserve Bank of Australia Governor Michele Bullock;
• tomorrow at 04:30 (GMT+3): Australian housing finance data;
• tomorrow at 15:30 (GMT+3): US core retail sales.

Overall, the inflation data allowed the US dollar to recover some of its earlier losses, but did not provide the market with sufficient grounds for a new sustained move. The further dynamics of AUD/USD and USD/CAD will depend on today’s US producer-price and labour-market data. Stronger-than-expected figures could support the US dollar and increase pressure on commodity currencies, while weaker data could revive expectations of a more dovish Fed policy and limit the dollar’s recovery.

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