Australian Dollar recovers modest intraday losses vs USD; lacks follow-through buying

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The Australian Dollar (AUD) reverses an intraday dip to the 0.7020 area and climbs to the top end of its daily range during the first half of the European session on Thursday.

AUD/USD attracts some dip-buyers as a positive risk tone undermines the safe-haven USD.
The Iran uncertainty and Fed rate hike bets should help limit USD losses and cap spot prices.
Diminishing odds of more rate hikes by the RBA contribute to keeping a lid on the Aussie.

The Australian Dollar (AUD) reverses an intraday dip to the 0.7020 area and climbs to the top end of its daily range during the first half of the European session on Thursday. Spot prices, however, lack bullish conviction and remain below mid-0.7000s, warranting caution before positioning for an extension of the previous day's bounce from over a two-month low.

Despite the uncertainty over the US-Iran peace deal, a steadier mood fails to assist the safe-haven US Dollar (USD) to capitalize on its modest gains and turns out to be a key factor that offers some support to the AUD/USD pair. The upside, however, seems limited amid persistent geopolitical uncertainties as the US and Iran continue to send contradictory signals about an agreement to end the over three-month-old war.

In fact, US President Donald Trump said on Thursday that a deal had been reached with Iran and the final document could be signed soon, perhaps even over the weekend. Iran countered that it had not reached a final decision on an agreement. Adding to this, Iranian forces blocked a tanker from transiting through the Strait of Hormuz without coordination, which keeps a lid on the optimism and should support the USD.

Meanwhile, the US Consumer Price Index (CPI) and Producer Price Index (PPI) released this week pointed to re-accelerating inflation, reaffirming bets that the US Federal Reserve (Fed) will hike interest rates by the end of this year. In contrast, traders have been scaling back their expectations of additional interest rate hikes by the Reserve Bank of Australia (RBA). This might contribute to keeping a lid on the AUD/USD pair.

Market participants now look forward to the release of the Preliminary University of Michigan US Consumer Sentiment Index for some impetus later during the North American session. The focus, however, will remain glued to further developments surrounding the Middle East crisis, which might continue to infuse some volatility across the global financial markets. This would drive the USD and the AUD/USD pair.

Economic Indicator

Michigan Consumer Sentiment Index

The Michigan Consumer Sentiment Index, released on a monthly basis by the University of Michigan, is a survey gauging sentiment among consumers in the United States. The questions cover three broad areas: personal finances, business conditions and buying conditions. The data shows a picture of whether or not consumers are willing to spend money, a key factor as consumer spending is a major driver of the US economy. The University of Michigan survey has proven to be an accurate indicator of the future course of the US economy. The survey publishes a preliminary, mid-month reading and a final print at the end of the month. Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Why it matters to traders?

Consumer exuberance can translate into greater spending and faster economic growth, implying a stronger labor market and a potential pick-up in inflation, helping turn the Fed hawkish. This survey’s popularity among analysts (mentioned more frequently than CB Consumer Confidence) is justified because the data here includes interviews conducted up to a day or two before the official release, making it a timely measure of consumer mood, but foremost because it gauges consumer attitudes on financial and income situations. Actual figures beating consensus tend to be USD bullish.