Aussie drifting, business confidence next

The Australian dollar is slightly lower on Monday. In the North American session, AUD/USD is trading at 0.7473, down 0.18% on the day.

The RBA tapered its bond purchases at last week’s policy meeting, scaling back from AUD 5 billion per week to AUD 4 billion per week. This tightening of policy could have been the basis for an upswing for the Australian dollar. Instead, the Aussie’s reaction was muted, since the tone of the meeting was decidedly dovish.

RBA Governor Philip Lowe appeared to put on a balancing act at the bank’s policy meeting last week. Lowe sounded positive in his assessment of the recovery, but at the same time, he was dovish when it came to the need for stimulus and interest rate hikes.

Lowe indicated that stimulus would be part of the monetary landscape for quite some time, stating that it was likely that QE would be needed in future business cycles. He reiterated that he did not expect the bank would raise interest rates before 2024. The RBA has stated that it would not raise interest rates before inflation rises to the bank’s inflation target of between 2-3 per cent, but inflation has not been at this level since 2015, and some analysts are questioning if this is a realistic target.

Over in the US, investors await the June CPI report, which will be released on Tuesday. Inflation rose by 5% in May YoY, and another sharp gain is expected for June, with a consensus of 4.9%. If CPI is within expectations, all eyes will be looking for clues from the Fed regarding a tightening of policy, which would be bullish for the US dollar.

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AUD/USD Technical

• There is support at 0.7400. Below, we find support at 0.7311
• On the upside, there is resistance at 0.7689 and 0.7778

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