The Australian dollar traded lower today and dropped to fresh one-month lows below 0.7360 as sentiment remains negative for the Aussie after the recent dovish RBA decision.
Chinese & US Inflation in focus
During the Asian session, China’s National Bureau of Statistics reported that in October, CPI rose 1.5% year-on-year, higher than the 1.4% expected and up from 0.7% scored in September.
At the same time, Chinese PPI rocketed to 13.5%, well above the consensus of 12.4%. That is the fastest pace since records began in November 1995.
Later in the day, the US CPI for October is due, and traders forecast inflation to stall at 5.3% using this measure, while the core inflation will likely stay unchanged at 4.0%.
Additionally, Thursday’s jobless claims will be released today because of bank holiday tomorrow.
On Tuesday, US data showed that the** producer price inflation (PPI) came in at 8.6% and the core rate at 6.8%,** nearly twice as high as at any time in the last ten years, and more than three times the Fed’s 2% inflation goal.
Lately, a couple of Fed’s governors reiterated investors that the Fed wouldn’t hurry to raise rates. However, St. Louis Fed President James Bullard took a more hawkish view, calling for two rate hikes in 2022.
“If inflation is more persistent than we are saying right now, then I think we may have to take a little sooner action in order to keep inflation under control,” Bullard said Monday in an interview on Fox Business Network.
Weak Aussie to persist?
The Aussie was hit by the recent dovish stance of the RBA as traders started to price in incoming rate hikes, only to be disappointed by the central bank. As a result, the market is mispricing any rate hikes soon, and the case for raising rates would not be met until late 2023.
Additionally, the Aussie failed to capitalize on the soaring commodity prices, as precious metals and oil rose sharply. Therefore, the bearish pressure could continue in the following days.
Since the Australian dollar dropped below solid support of 0.7400, **the short-term outlook now appears bearish. **The next target for bears could be at previous lows in the 0.7320 region. Another demand zone could be at the medium-term ascending trend line, currently near 0.7250.
Alternatively, the Aussie needs to climb back above 0.74 to cancel the immediate bearish threat. In that case, bulls could push the pair to0.7470 as the next target.