As economists predict a slight increase in US producer prices by 0.1% in May, following a 0.5% rise in April, investors are closely monitoring these numbers. A potential rise in core producer prices by 0.3% after a 0.5% increase in April could have significant implications. If the numbers come in softer than expected, investor bets on a September Fed rate cut may intensify. The reduction in prices by producers due to waning demand could impact consumer price trends, potentially leading to a cut in interest rates by the Fed to maintain price stability.
In addition to producer prices, economists are anticipating an increase in initial jobless claims from 225,000 to 229,000 in the week ending June 8. A higher-than-expected rise in jobless claims could further reinforce investor expectations of a Fed rate cut in September. The weakening labor market conditions might affect wage growth and decrease disposable income, consequently influencing consumer spending and demand-driven inflation.
Market Impact and Potential Scenarios
The near-term trends in AUD/USD are likely to be influenced by the upcoming labor market data and US producer prices. If US producer prices are below expectations and labor market conditions deteriorate, the focus might shift towards the Aussie dollar. However, for the Australian dollar to maintain buyer interest, the labor market numbers must either align with or surpass forecasts. The currency pair has remained significantly above the 50-day and 200-day EMAs, indicating a bullish trend. A break above the $0.67003 resistance level could potentially trigger a climb towards $0.67500, with a further breakout leading to the $0.67967 resistance level coming into play.
Investors should not only analyze Australian employment and US economic indicators but also pay close attention to FOMC member commentary. Fed Vice Chair John Williams is scheduled to speak, and his insights on inflation, economic outlook, and the Fed’s rate path could sway market sentiment. Conversely, a drop in AUD/USD below the $0.66500 mark may embolden bearish sentiment, potentially targeting the 50-day EMA. With the current 14-period Daily RSI reading indicating a neutral stance, the AUD could reach the $0.67500 level before approaching overbought territory.
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