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AUD/USD - Judgment day for the Fed
10.06.2022

The market is waiting eagerly for the release of the US CPI figure which is due to be announced this afternoon. The Federal Reserve had kept the interest rate at 0.25% throughout most of the past 2 years in order to prompt an increase in employment back to the pre-covid level. However, the super low interest rates also prompted high inflation.

The Federal Reserve has since increased the interest rate to 1.00% in an attempt to bring inflation under control. Today it remains to be seen how successful the Fed has been in their assessment and decision making.

The price movement of the AUD/USD pair has declined over the past 2 days forming a longer-term retracement, the retracement measures 1.90%. However, the price movement against the US Dollar has increased today as the Dollar takes a break after a two-day incline against the market. This was to be expected as investors and economists are eager to see the inflation figures from the previous month. The CPI report can also give analysts extra statistical information to determine how the Fed is likely to react in the coming months.

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Most of the Central Bank’s members judged that a 50-basis-point hike in the foreseeable future would be appropriate, this is what was confirmed in the minutes from the latest FOMC meeting in May. Participants also noted that a restrictive stance of policy may well become appropriate depending on the evolving economic picture.

In terms of the latest political picture, the market mainly focused on the speech of President Biden at the Summit of the Americas. The POTUS (President of the US) did mention inflation, but investors also noted that he raised the issue of global food shortages, which have dampened investor confidence in the past months. In particular, the president advised that the US and its partners are working on a plan to increase the production of food and fertilizers amongst other shortages. The fact that the President has stressed the severity of the issue jaded investor sentiment and led to the decline of many risk-based assets such as US stocks.

The US Dollar was also affected by data on the number of initial applications for unemployment benefits in the US, which turned out to be worse than the estimates of experts, the figure was 19,000 higher than predicted. Today, the CPI figure is predicted to be announced as 0.7% which is higher than the previous month.

Australia has no scheduled economic releases for today, nor has anything been released over the past 2 days. Investors seem to still being influenced by the hawkish position of the Reserve Bank of Australia. According to the head of the RSA, Mr. Lowe, price growth is likely to carry on, and a slowdown should be expected only in 2023, when inflation may return to the target range of 2-3%.

The main market driver today is likely to be the US Dollar and the CPI confirmation. As mentioned above, the price has slightly increased but traders should note that this may change as the event nears and is released.

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