Aussie rally continues, business confidence next

The US dollar has continued its retreat against most of the major currencies today. The Australian dollar has jumped on the bandwagon, climbing about 2% in just two days. AUD/USD is trading at 0.6882 in the North American session, up 0.59% on the day.

The Australian dollar skyrocketed on Friday after China’s inflation report indicated that CPI dropped in August to 2.5%, down from 2.7% and lower than expected. The decline in inflation in the world’s number two economy will lower global inflation, and this raised risk sentiment on Friday. The Australian dollar, which is very sensitive to developments in China, climbed 1.36%. The Australian currency’s dependence on China is a double-edged sword, as lower growth in China will weigh on the Australian economy and the Australian dollar. In the meantime, AUD/USD has jumped on the bandwagon and hit a 2-week high.

We’ll get a look at Australian and business and consumer confidence indicators on Tuesday. NAB Business Confidence is expected to tick lower to 6, down from 7 prior. However, Business Conditions are forecast to improve to 27, up from 20 prior. The Westpac Consumer Sentiment index has posted nine straight declines, pointing to prolonged consumer pessimism about economic conditions.

US inflation next

The US releases a critical inflation report on Tuesday. August inflation is the last major release prior to the Fed meeting on September 21^st and headline CPI is expected to drop for a second straight month, from 8.5% to 8.1%. Another drop in inflation will likely result in some headlines that inflation has peaked. Still, the Fed is committed to remaining aggressive and the markets have priced in a 75 basis point hike at around 90%. Lower gasoline prices may push headline CPI lower, but core CPI is expected to rise to 6.1%, up from 5.9%.

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AUD/USD Technical

• AUD/USD is testing support at 0.6737. Below, there is support at 0.6661
• There is resistance at 0.6737 and 0.6846

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