At the last RBA meeting, the Board decided to hike rates by 25 bps due to unexpectedly high inflation. Furthermore, Governor Lowe indicated that he expects further interest rate hikes over the coming months. See here for the analysis after the last meeting. This should keep the AUD supported over the medium term. However, slowing growth, falling commodity prices, and COVID cases in China is also significant headwind for the AUD.

The USD, by contrast, is looking increasingly like it is close to peak bullishness. The latest CPI print on Wednesday this week showed a print above expectations for the headline and core, but still below the previous reading.

It is unclear whether the US has passed peak inflation, but if it has the AUDUSD pair could correct sharply higher. Between May 24 and July 22 the AUDUSD has gained 11 times. The largest gain was over 9.31% in 2020 and the largest loss was -5.75% in 2015. Will the AUDUSD pair move higher in line with its seasonal pattern this year?

Major Trade Risks: Inflation pressure is key. If the US sees inflation pressures building even further then that will keep up expectations of even more aggressive Fed action and could keep the USD bid and invalidate this outlook.

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