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28/08/24
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Geopolitical Tensions Weigh on Australian Dollar Ahead of CPI Report
The Australian Dollar (AUD) has seen slight declines, hovering around 0.6790 during the early trading hours in Asia on Wednesday. The overall risk-averse sentiment stemming from escalating geopolitical tensions in the Middle East appears to be putting pressure on riskier assets like the AUD. Investors are particularly focused on the upcoming Australian Consumer Price Index (CPI) report, set for release on Wednesday, as this could provide new direction for the currency pair.
Current geopolitical developments, especially in the Middle East, are expected to boost safe-haven currencies such as the US Dollar (USD). Reports indicate that thousands of special forces have been mobilized for an extensive military operation in the northern West Bank, which is projected to unfold over several weeks.
Despite this, expectations of a potential interest rate cut by the US Federal Reserve could limit the upside potential of the USD and offer some support to the AUD/USD pair. Speculation suggests that the Fed may lower rates by a quarter-point in September, following remarks from Fed Chair Jerome Powell indicating a need for a rate adjustment.
Meanwhile, consumer confidence in the United States has been on the rise, with the Conference Board’s Consumer Confidence Index increasing from a revised 101.9 in July to 103.3 in August. However, this data has had minimal influence on the valuation of the USD at present.
On the Australian side, inflation data is anticipated to cool off, with forecasts suggesting a drop in the July CPI to 3.4% year-over-year from 3.8% in June. A weaker-than-expected inflation figure could fuel speculation about a possible rate cut by the Reserve Bank of Australia.
In summary, while geopolitical tensions present challenges for the AUD, market anticipations regarding US monetary policy and domestic economic indicators will play a significant role in shaping its trajectory in the near term.
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