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The Australian dollar tested a significant resistance level at 0.6550 on Thursday, which corresponds to the upper line of the Bollinger Bands indicator on the D1 timeframe. This is the highest price since November of last year. Notably, AUD/USD traders ignored the CPI growth report from Australia, which came in the "red zone," reflecting a slowdown in inflation. The aussie was supported by more significant factors.
First, the Australian dollar is in demand amid easing geopolitical tensions following the ceasefire agreement between Iran and Israel. Interest in risk assets has increased, including interest in the Aussie.
Second, the U.S. dollar is under serious pressure. Again, this is due to a decline in risk-off sentiment, but that's not all. The greenback has been hit by Donald Trump's recent statements about firing Fed Chair Jerome Powell. Additionally, a Wall Street Journal report revealed that the U.S. President plans to choose Powell's successor in early fall (his term ends in May next year). This has raised concerns among traders that the Fed may become a "branch" of the Trump administration. Trump is known for his preference for aggressively easing monetary policy, and it's almost certain that the next Fed chair will share his views.
Against this backdrop, the U.S. Dollar Index plunged into the 96.00 range, hitting a three-year low. Accordingly, the AUD/USD pair reached its highest level in seven months.
At the same time, the above-mentioned Australian inflation report was largely ignored by the market. More prominent developments overshadowed this fundamental factor.
Still, it's important to note that Australia's monthly CPI slowed for the first time in six months—and more than expected. For three months (February to April), the Consumer Price Index was at 2.4%. It was expected to slow slightly to 2.3% in May but instead fell to 2.1%, the lowest since October of last year.
On one hand, the Reserve Bank of Australia (RBA) primarily focuses on quarterly data (Q1 CPI was at 2.4%, the same as in Q4 last year). On the other hand, Q2 inflation data will only be published at the end of next month, i.e., after the RBA's July meeting (scheduled for July 8).
First, AUD/USD traders are primarily reacting to the U.S. dollar's behavior, which is acting as a driver of price movement. The aussie tends to follow the greenback's lead. As noted above, the U.S. Dollar Index is in a sharp downward spiral after a steep rally during the Israel-Iran conflict.
Another weight dragging on the greenback is weak macroeconomic data. Notably, the Conference Board Consumer Confidence Index fell into the "red zone," dropping to 93 instead of the expected increase to 99.4. Furthermore, U.S. GDP growth figures were revised downward. According to the final estimate, U.S. GDP in Q1 contracted by 0.5% (worse than the previously reported -0.2%).
Second, the outcome of the July RBA meeting is seen as a done deal. Most analysts believe the central bank will leave all monetary policy parameters unchanged next month. Especially since the U.S. and China still haven't finalized their announced trade deal. In early June, Washington and Beijing reached a framework agreement that sets 55% tariffs on Chinese goods and 10% duties on U.S. goods. The agreement now must be approved by Trump and Xi Jinping. A meeting is expected by the fall—likely in August. Hence, the RBA may opt for a wait-and-see approach due to this factor.
As for inflation, as mentioned, the RBA is focused on quarterly data, due out at the end of July. It's too early to talk about a sustained monthly CPI slowdown without more data. Moreover, consumer inflation expectations in Australia recently jumped to 5.0% from 4.1%, so the "inflation factor" is unlikely to be decisive—at least for the July meeting.
Thus, the current fundamental backdrop supports further growth in AUD/USD, even as the pair trades near 7-month highs. From a technical perspective, on the daily chart, the pair is testing the resistance level at 0.6550 (upper Bollinger Band). Buyers have so far failed to break this level decisively, so long positions are only advisable once the pair consolidates above 0.6550. In that case, the next target for the upward movement would be 0.6600—this is the upper Bollinger Band on the W1 timeframe.
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