Australian Dollar Supported by Strong Credit Growth and Inflation Data

Highlights:

• AUD/USD trading around 0.6540 at the time of writing, supported by strong private sector credit growth.
• Australia’s Private Sector Credit rose 0.7% in July, the fastest pace since April, while CPI climbed 2.8% YoY.
• US Dollar Index at 97.90, capped by dovish Fed signals despite stronger Q2 GDP growth of 3.3%.

Private Sector Credit Surges

The Australian Dollar/US Dollar (AUD/USD) pair steadied on Friday after three consecutive sessions of gains, supported by strong domestic data. At the time of writing, the pair was trading around 0.6540, holding near monthly highs. Australia’s Private Sector Credit rose 0.7% in July, the fastest monthly increase since April. On a yearly basis, credit expanded 7.2%, up from 6.9% in the previous two months, marking the strongest growth since February 2023. The solid credit figures, coupled with resilient inflation data, have eased expectations of an imminent rate cut by the Reserve Bank of Australia (RBA).

Inflation Eases Rate Cut Pressure

Australia’s Monthly Consumer Price Index (CPI) climbed 2.8% year-on-year in July, well above the forecasted 2.3% and the previous 1.9% increase. The stronger inflation print has strengthened the case for the RBA to maintain its policy stance, even as minutes from its August meeting hinted at the possibility of future rate reductions depending on global conditions.

US Dollar Faces Dovish Fed Outlook

On the other side of the currency pair, the US Dollar Index (DXY) was trading near 97.90 at the time of writing, supported by stronger-than-expected second-quarter GDP growth of 3.3%. However, dovish comments from Federal Reserve officials have capped the Greenback’s upside. Fed Governor Christopher Waller signaled support for a rate cut in September, while Chair Jerome Powell acknowledged rising risks to the labor market.

Technical View

From a technical perspective, AUD/USD remains above its nine-day Exponential Moving Average (EMA) at 0.6502, suggesting bullish momentum. A break above 0.6568, the monthly high, could see the pair test 0.6625, its nine-month peak. On the downside, support lies near 0.6490, with a fall below this level likely to revive bearish sentiment.

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