AUD/USD: Traders ignored Australia's inflation report

The Australian dollar updated this week's high during the Asian session on Wednesday, as a response to the country's good inflation data. The AUD/USD pair reached the level of 0.7765, but it retreated almost immediately from this peak. Apparently, traders are not in a rush to open large positions before the results of the Fed's January meeting will be announced. This evening, the US regulator will set guidelines for its future policy, while assessing the current situation. Ahead of this event, market participants are seen nervous, ignoring many fundamental factors. This explains the muted reaction of AUD/USD traders to the inflationary release. However, this is not so important if we talk about the medium and long-term prospects of the AUD. In any case, today's publication will become a fundamental factor for the development of the upward trend.

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So, the general consumer price index in the fourth quarter turned out to be in the positive zone, exceeding the preliminary forecasts of most experts both on an annual and quarterly terms. Based on the published data, the indicator increased to 0.9% (with a forecasted growth of 0.7%) in annual terms, and to 0.9% (with a forecasted growth of 0.7%) in quarterly terms. According to the RBA (using the shortened average method and the weighted median method), the core inflation index also showed positive dynamics, reflecting the recovery processes.

It should be recalled that the latest data on the Australian labor market similarly came out in the "green" zone, despite experts' negative forecasts. The unemployment rate declined to 6.8%, against analysts forecast of 7%. In addition, the growth rate of the number of employed surged by 90 thousand, instead of the expected 40,000. And most importantly, the indicator grew primarily due to the growth in full employment. Thus, the full-time component increased by 84 thousand, while the part-time component by 6 thousand, respectively. At the same time, the share of the economically active population increased to 66.1% – this is the best result since August 2019.

Today's release only added to the optimistic macroeconomic prospects, although the published figures are still far from the deal, pre-crisis levels. But at the same time, it should be noted that the growth rates of key indicators surpassed the forecasts. This fact suggests that the Australian economy as a whole withstands the coronavirus pandemic.

The data published today is significant in the context of the medium and long term growth prospects for the AUD/USD pair. During the previous meetings, members of the Australian regulator have repeatedly pointed out the unevenness of recovery processes. In particular, the RBA announced last December that if the indicators of the labor market and inflation do not show enough recovery in the near future, they will consider expanding the stimulus program. Taking into account the dynamics of Australian Nonfarm and Inflation, it can be assumed that the regulator will keep a wait-and-see attitude and will voice out a restrained optimistic rhetoric at the next meeting on February 2.

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This fundamental background allows AUD/USD buyers to claim new price heights. However, traders are not rushing to open large positions before the announcement of the results of the Fed's January meeting. On the one hand, this meeting will most likely be ignored, as the regulators are expected to leave the parameters of monetary policy unchanged. On the other hand, a certain intrigue still remains due to a lot of things that happened since the December meeting. Here, we do not only have Biden's victory, Yellen's appointment, an almost 2-trillion aid package (though not yet approved by Congress) and a massive campaign to vaccinate Americans against coronavirus, but also disappointing macroeconomic reports: failed Nonfarm, weak inflationary growth, disastrous retail sales, etc. Thus, it is still unknown what aspects Jerome Powell will focus on. It is also noteworthy that amid optimism associated with Biden's victory in the elections, the currency market began to hear more rumors that the Fed would curtail stimulus programs ahead of schedule. In my opinion, the Fed's Chairman will refute these rumors today and say that it is too early to talk about it. In this case, the US dollar will be under pressure, and buyers of AUD/USD will manage to take full advantage of the inflationary data.

Technically, purchases of the Australian dollar are still relevant in the medium and long term, even despite temporary bursts of market interest in the US currency. Longs can be considered with the main target of 0.7800 (upper line of the Bollinger Bands on the daily chart). On D1, the price is located between the middle and upper lines of this indicator, as well as above all the lines of the Ichimoku trend indicator. All this indicates that the upward scenario is the main priority. The support level is the target of 0.7650 – lower line of the Bollinger Bands, which coincides with the Kijun-sen line on the same timeframe. A stop loss can be placed from this level, since the upward scenario will lose its relevance if the pair collapses below it. Nevertheless, this scenario looks unlikely given the overall fundamental background for the AUD/USD pair.

The material has been provided by InstaForex Company - www.instaforex.com

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