Australian Dollar Surges on Ceasefire Hope and Weaker Inflation Figures
Australian Dollar (AUD) rose for a third consecutive session on Wednesday, supported by the removal of geopolitical risk and weaker-than-anticipated domestic inflation figures. The U.S. President Trump-announced Israel-Iran ceasefire improved risk appetite in the world and weakened the safe-haven U.S. Dollar, underpinning the risk-sensitive AUD. Meanwhile, Australia’s May CPI rose by 2.1% year-over-year, below market expectations, reinforcing the likelihood of a Reserve Bank of Australia (RBA) rate cut in July. As markets price in an 80% chance of a 25bps cut, the AUD/USD pair climbed above 0.6500, showing persistent bullish momentum backed by favorable technical indicators. KEY LOOKOUTS • Markets are implying an 80% chance of a 25bps rate cut after softer-than-anticipated CPI numbers and lackluster GDP readings. • The AUD is also reactive to geopolitics; any continuation in the sustainability of the Israel-Iran ceasefire can continue to support risk appetite. • Comments from Fed Chair Powell imply no near-term rate cuts, but mixed comments from other Fed officials can bring volatility to the USD. • AUD/USD is threatened by resistance at the June 16 high, with a breach above potentially validating sustained bullish momentum. The Australian Dollar continues to appreciate against the US Dollar on the back of calming geopolitical tensions and weakening domestic inflation data. Global risk sentiment has been aided in recent days by the ceasefire between Israel and Iran, which has diminished the safe-haven characteristics of the USD and increased the risk-sensitive AUD. At the same time, Australia’s May CPI was lower than forecast at 2.1% year-over-year, affirming the rate cut by the Reserve Bank of Australia (RBA) expectations as early as July. While markets are price-accustomed for monetary easing and technicals are reflecting bullish strength, the AUD/USD pair is holding strongly north of the 0.6500 level. Australian Dollar extends gains on better risk sentiment after the Israel-Iran ceasefire and lower Australian inflation numbers. The markets now price in a July rate cut from the RBA, with AUD/USD breaking above the 0.6500 mark. Technicals still show bullish momentum. • AUD/USD rises above 0.6500 on improved risk appetite and declining geopolitical tensions. • Israel-Iran ceasefire improves market mood, deters safe-haven US Dollar. • Australia’s May CPI increased 2.1% YoY, weaker than expected 2.3% and previous 2.4%, making rate cut expectations more certain. • 80% probability of 25bps RBA rate reduction in July are priced in by markets, with combined 73bps cuts being expected by the end of the year. • Fed Chair Powell indicates delayed rate cuts, likely in Q4, while other Fed officials are less clear in their views. • AUD/USD remains above the 9-day EMA, with buy signals from RSI and ascending channel pattern. • Major resistance at 0.6552 and 0.6570, with nearest support at 0.6486 and 0.6450. The Australian Dollar remains firm, boosted by better global risk appetite and a weaker inflation outlook domestically. The news that a ceasefire between Israel and Iran has been agreed, announced by U.S. President Donald Trump, has relaxed geopolitical tensions and generated hope in financial markets. This has caused demand for the safe-haven currency like the US Dollar to fall, boosting risk-sensitive currencies like the Australian Dollar. The ceasefire has also brought optimism for possible diplomatic advancements, including resumption of nuclear negotiations, further bolstering market confidence. AUD/USD DAILY PRICE CHART SOURCE: TradingView Locally, the economic figures from Australia have lent further support to the Aussie Dollar. Australia’s Monthly Consumer Price Index (CPI) rose 2.1% on a yearly basis in May, softer than forecast. This combined with earlier published subpar GDP readings has helped fuel market expectations of a July interest rate cut by the Reserve Bank of Australia (RBA). Market participants now price in several rate cuts by year-end. The mutual support of reducing inflation pressures and a favorable international environment has assisted in maintaining the recent trend of the AUD. TECHNICAL ANALYSIS The AUD/USD pair continues to have a bullish bias since it trades above the 9-day Exponential Moving Average (EMA) and continues to be within an uptrend channel pattern. The 14-day Relative Strength Index (RSI) is slightly above the 50 level but has not entered the overbought zone, signaling improving positive momentum without reaching overbought levels. If the pair sustains its move above 0.6500, it could retest the recent high of 0.6552, followed by potential resistance near 0.6570. On the downside, immediate support lies at the 9-day EMA around 0.6486, with further downside limited by the lower channel boundary and the 50-day EMA near 0.6450–0.6438. FORECAST If the bullish pressure persists, AUD/USD is set to revisit the recent high of 0.6552, the seven-month high. Breaking above it could pave the way for a move towards the upper edge of the rising channel of about 0.6570. On-going risk-on appetite, combined with hopes of policy easing from RBA, could continue to propel price higher, especially if geopolitical tensions remain mild and market optimism continues to increase. On the flip side, if the pair does not hold above 0.6500, near-term support lies at the 9-day EMA around 0.6486. A strong break below here might turn bearish momentum, taking AUD/USD to the lower end of the rising channel at 0.6450. Lower levels may be seen testing the 50-day EMA at 0.6438, if US Dollar demand picks up with the release of better economic data or with dovish Fed speak.