The AUD/USD currency pair has struggled to gain bullish momentum in recent trading sessions as traders remain cautious ahead of the highly anticipated US Consumer Price Index (CPI) report. The currency pair saw early gains on the back of a positive risk tone, but a stronger US dollar has capped its gains. In this article, we discuss the factors driving the performance of the AUD/USD and its outlook in the coming weeks.
Factors driving AUD/USD performance:
The performance of the AUD/USD currency pair is being driven by several factors. Firstly, a positive risk tone is benefiting the risk-sensitive Aussie. This is because investors are more willing to take on risk in the current economic climate, which is generally positive for riskier currencies such as the Australian dollar.
However, gains in the AUD/USD have been limited by a stronger US dollar, which is the second factor impacting the currency pair’s performance. The US dollar has been gaining strength in recent weeks as investors turn to the safe-haven currency amidst rising inflation concerns and the possibility of an earlier than expected rate hike by the Federal Reserve.
Lastly, traders are also adopting a cautious stance ahead of the highly anticipated US CPI report, which is scheduled for release later this week. The report is expected to show a significant increase in inflation, which could prompt the Federal Reserve to take a more hawkish stance on monetary policy. As a result, traders are hesitant to place aggressive bets on the AUD/USD until they have more clarity on the direction of US monetary policy.
Outlook for the AUD/USD:
The outlook for the AUD/USD in the coming weeks is mixed. On the one hand, a positive risk tone could continue to benefit the Australian dollar, particularly if the global economic recovery remains on track. However, gains in the AUD/USD are likely to be limited by a stronger US dollar, which is expected to remain in demand amidst rising inflation concerns.
In addition, the outcome of the US CPI report could have a significant impact on the AUD/USD. If the report shows a significant increase in inflation, this could prompt the Federal Reserve to take a more hawkish stance on monetary policy, which would be positive for the US dollar and negative for the Australian dollar. On the other hand, if the report shows a lower than expected increase in inflation, this could ease concerns about an earlier than expected rate hike and be positive for the AUD/USD.
In conclusion, the AUD/USD currency pair has struggled to gain bullish momentum in recent trading sessions due to a combination of factors, including a stronger US dollar and cautious trading ahead of the US CPI report. The outlook for the currency pair in the coming weeks is mixed, with gains likely to be limited by a stronger US dollar and the outcome of the US CPI report. As always, traders should exercise caution and closely monitor market developments to make informed trading decisions.