The Australian Dollar's recent recovery ran out of steam on Monday. The AUD/USD pair slipped back to around 0.6920 after touching two-week highs at 0.6950. The main triggers were softer inflation figures out of Australia and a moderate decline in job advertisements, both of which chipped away at the momentum that had been building behind the currency.
On top of that, comments from Iranian authorities about the status of the Strait of Hormuz weighed on risk appetite on Monday. When global tension rises, investors tend to back away from currencies seen as riskier, and the Australian Dollar sits squarely in that category, so the pressure fed straight through to the Aussie.
Inflation and jobs data spoil the mood
The latest numbers from Australia suggested that price pressures are not building as quickly as many had feared. Soft inflation paired with a moderate drop in job advertisements points to an economy that is cooling a little. For the currency market, that signal matters, because weaker inflation has a direct bearing on the path of interest rates.
In practice, these figures ease concerns about the inflationary pressures stemming from the Middle East conflict. That link is central to understanding why the Aussie lost ground.
Relief for the RBA and a wait-and-see stance
The softer data hands the Reserve Bank of Australia (RBA) some breathing room. It gives the central bank scope to extend its wait-and-see phase, allowing more time to gauge the real economic impact of the interest rate hikes delivered in the first half of the year. When inflation looks contained, the pressure on a central bank to act aggressively fades, and that easing of urgency is exactly what is weighing on the Australian Dollar right now.
What the TD-MI inflation gauge actually is
The TD-MI inflation gauge, released by the Melbourne Institute, is built to deliver a timely and accurate monthly read on inflation in Australia. It rests on the same Australian Bureau of Statistics methodology used to calculate the quarterly consumer price index (CPI).
The Melbourne Institute Monthly Inflation Gauge estimates month-to-month price movements across a wide-ranging basket of goods and services in Australia's main capital cities. Its MoM figure compares prices in the reference month with those of the previous month. The rule is straightforward, the higher the inflation, the stronger the effect it has on the probability of an interest-rate hike by the RBA. As a general guide, a high reading is treated as positive, or bullish, for the Australian Dollar, while a low reading is seen as negative or bearish.
Pound and Euro under pressure too
The British Pound also ticked lower against the US Dollar on Monday, looking to break a seven-day rally. The reason was, once again, rising tension in the Strait of Hormuz, one of the critical points in the peace process between Washington and Tehran. At the time of writing the GBP/USD pair was trading near 1.3340, down from last week's 1.3387 highs, though its near-term bullish trend remains intact.
The Euro told a similar story. In Monday's European session the EUR/USD pair drifted marginally lower, heading toward 1.1400. It faced slight selling pressure as the US Dollar firmed up following a negative weekly close. Middle East concerns and a rally in USD/JPY lent support to the Greenback.
Where gold and Dogecoin stand
Gold showed some resilience below the $4,150 level. Earlier on Monday it had touched a two-week high just above the $4,200 mark, and its intraday retracement slide now appears to have stalled. Even so, the metal holds a negative bias heading into the European session and has snapped a three-day winning streak.
In the crypto market, Dogecoin (DOGE) edged toward $0.0770. After a 4% rebound on Friday, it has held a broadly consolidative tone for the last three days. The first-ever meme coin is losing retail interest as DOGE derivatives volume drops. At the same time, on-chain data points to early signs that large-wallet investors, commonly known as whales, are expanding their holdings.
Suspense over the Fed builds at Sintra
Financial markets arrived in Sintra hoping to pick up clues about the Federal Reserve's (Fed) next move. What they mostly walked away with was confirmation that Fed Chair Kevin Warsh intends to make those clues much harder to find. In other words, rather than clearing up the outlook for interest rates, the gathering left the market with even more to puzzle over.
