Aussie rises on inflation, Ethereum experiences a sharp crash

The Australian dollar rose broadly in Asian trading following the release of better-than-expected inflation data. The slight slowdown in inflation was not as pronounced as markets expected, reinforcing the RBA's stance that it is not yet ready to cut interest rates. Although the data reduces the urgency of another rate hike, it still supports the view that the RBA will maintain its current policy for the foreseeable future.

The RBA's attention now turns to the upcoming second quarter GDP data, scheduled for release on 4 September. This data will provide important insights ahead of the next meeting on 23-24 September. However, with inflation pressures remaining high, the RBA is expected to keep rates steady. The real test will be the third quarter inflation data, which will be released on 30 October and will play a key role in the full review of RBA policy at its meeting on 4-5 November.

On the global stage, the Swiss franc continues to be the strongest performer of the week, buoyed by heightened geopolitical tensions in the Middle East. The Canadian dollar follows closely behind, driven by a rise in oil prices, also linked to the geopolitical situation. The pound is currently the third strongest currency.

The euro, on the other hand, is under considerable pressure, making it the weakest currency this week. Economic and consumer sentiment data from Germany have heightened fears of a recession in the eurozone's largest economy. The yen is also underperforming, weakened by the recovery in benchmark yields in the US and Europe. The US dollar is struggling to regain its footing after last week's Jackson Hole Symposium, making it the third weakest currency.

The cryptocurrency market saw a sharp sell-off in Ethereum during the Asian session, amid reported massive liquidations of long positions. Technically, the strong break of the 2531.80 support should confirm that the corrective recovery from 2084.51 at 2819.10 is already complete after rejection by the 2797.60 support turned into resistance. The downtrend from 3973.10 also remains intact, with the recovery capped well below the falling 55-day EMA. Next should be a retest of the 2084.51 low. The question is whether the selling is strong enough to push Ethereum from 2819.10 at 1906.22 to the 61.8% projection of 3561.65 to 2084.51.

In Asia, the Nikkei is down -0.23% at the time of writing. Hong Kong's HSI is down -0.88%. China's Shanghai SSE is down -0.11%. Singapore Strait Times is down -0.41%. Japan's 10-year JGB yield is up 0.0101 to 0.890. Overnight, the DOW is up 0.02%. The S&P 500 is up 0.16%. The NASDAQ is up 0.16%. The 10-year bond yield is up 0.015 to 3.833.

Australia’s monthly consumer price index (CPI) slows to 3.5% in July, slightly above expectations

Australia's monthly consumer price inflation slowed to 3.5% in July from 3.8% in June, above expectations of 3.4%. The consumer price index excluding volatile goods and leisure travel also eased, falling to 3.7% from 4.0%. In addition, the annual trimmed consumer price index, a measure used to smooth out irregular price fluctuations, fell to 3.8% from 4.1%.

The largest price increases came from housing (+4.0%), food and non-alcoholic beverages (+3.8%), alcohol and tobacco (+7.2%) and transport (+3.4%). These sectors continue to exert upward pressure on inflation despite the overall slowing trend.

BoJ chief Himino signals willingness to raise interest rates further as economic confidence rises

BoJ Deputy Governor Ryozo Himino reiterated the central bank's commitment to adjust its monetary policy as confidence in the economic outlook increases. In a speech, Himino said that if the BoJ gains “growing confidence” in its economic and price forecasts, it will “adjust the degree of monetary easing,” which would signal a willingness to raise interest rates in the future.

Himino outlined the baseline scenario for fiscal years 2025 and 2026, describing it as a “fairly balanced state” in which inflation is in line with the price stability target and economic growth is “slightly above cruising speed.” But he warned of two risk scenarios: one in which inflation remains above 2% and another in which it falls well below 2% and fails to recover.

Regarding the recent volatility in financial markets, Himino noted that the appreciation of the yen could ease the pressure on import costs suffered by small and medium-sized companies, even if it could reduce the yen-denominated profits of export industries. He assured that Japanese companies have strengthened their competitiveness. While the volatility in stock prices is influential, it is unlikely to significantly affect business sentiment.

A look into the future

The Swiss UBS economic expectations and the M3 money supply for the euro zone will be published in the European session. The US will publish weekly crude oil inventories.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6771; (P) 0.6784; (R1) 0.6805; More…

AUD/USD is rising slightly as the rise from 0.6348 continues today. The intraday bias remains on the upside despite some loss of momentum as seen in the 4H MACD. The next target is 0.6870. A firm break there will target the 100% projection of 0.6269 to 0.6870 from 0.6348 at 0.6949. The short-term outlook remains bullish in case of a decline as long as the 0.6696 support holds.

In the bigger picture, price action from 0.6169 (2022 low) is seen as a medium-term corrective pattern, with the rise from 0.6269 being the third leg. A firm break of the 0.6798/6870 resistance zone will target the 0.7156 resistance. In case of further decline, strong support should be seen from 0.6169/6361 to initiate a recovery.

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