Global macro overview for 26/07/2017:
The second quarter CPI data from Australia were worse than anticipated. The Australian Bureau of Statistics revealed that Q2 CPI was at the level of 0.2%, which was a worse than the previous reading of 0.5% and worse than market expectations of 0.4%. In a yearly basis, the CPI deteriorate from 2.2% to 1.9%. Annual inflation comes in roughly at the midpoint of the central bank's 1-3% target range. Last year, CPI fell to multi-decade lows, prompting the RBA to slash interest rates to new record lows.
The Australian Dollar's depreciation is the result of disappointing lower-than-expected inflation readings for the second quarter and the repetition by Reserve Bank of Australia Governor Phillip Lowe of a very dovish Debelle statement from a week In the speech, he reiterated, that RBA is not going to raise rates quickly and will not allow the market to discount such a scenario under the influence of increases made by the Bank of Canada for example. Moreover, it does not look like the iron ore or copper ore prices will be still developing to such an advantage for the Australian dollar as before. In the case of industrial metals, the global investors will probably have to wait longer, but the corrective cycle is indispensable. The sooner the Chinese economy, which consumes more than all OECD countries together, will lose momentum in the second half of the year, the faster the correction will happen. With that in mind, the global investors should not forget that copper at high levels (today's at 27-month peak) is more stabilized by supply disruptions than demand and the similar situation is on iron ore and aluminum markets. Therefore, there is no reason to expect the industrial metal price to be able to support the Australian Dollar. With the current RBA monetary policy plans and after very strong strengthening to 0.8000 level. the AUD/USD will be one of the most sensitive currencies when the US Dollar begins to make up its losses.
Let's now take a look at the AUD/USD technical picture at the H4 timeframe. The pair is trading close to two years high around the level of 0.7900. The market conditions look overbought on this timeframe and the momentum indicator is pointing to the downside. The next technical support is seen at the level of 0.7874 and 0.7838.
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