According to yesterday’s data by the Australian Bureau of Statistics, inflation in Australia has increased by 0.5% in Q2 and by 1.7% on annual basis. The index rose against the forecast values and the value a month ago (0.4% and 0.2% respectively). Consumer price index in Q2 has grown by 0.4% compared to the previous quarter and by 1.0% compared to the same period last year). The Australian dollar first went up after the release of this data but then fell on expectations of an interest rate decrease by the RBA next week and in anticipation of the interest rate decision by the US Fed.

As it became known, the Fed left short-term interest rate unchanged at the level of 0.5%. The Fed said that short-term risks to economic growth have decreased, but at the same time Fed representatives did not clearly indicate possibility of the rate hike in September, as was expected by market participants. Investors made conclusion that the US Central Bank has not yet determined future plans yet. As a result, after the sharp rise, the USD fell in the market against the most counterparts.

After the announcement of the US Fed decision the pair AUD/USD fell, but later went up and closed yesterday’s trading session at the level of 0.7490. Today, the rise in the pair continued.

It is expected now that the US Fed will increase the rate only once this year in December. As expected the rate will be raised by 25 basis points, up to 0.75%. This expectations trigger sales in the USD. However, traders shall be careful about the rise in the pair AUD/USD.

Despite the rise in Australian inflation indicators in Q2, inflation rate is still close zero, which is much lower than the target range set by the RBA at the levels of 2% -3%. Current interest rate rate in Australia is at the level of 1.75%.
There is high probability that the interest rates will be decreased by the RBA next month (August 2).
The decline in interest rates will lead to the fall in the Australian dollar and the pair AUD/USD. Due to the expectation of this event investors will refrain from the aggressive purchases of the Australian dollar, including the pair with the USD.

AUD/USD: Australian inflation rate has grown in Q2. Fundamental analysis for 28/07/2016.

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