• Australian Dollar (AUD) pared earlier losses as the mood in the market improved on upbeat US inflation data
  • US inflation increases 0.6% month on month in July following from stronger than forecast PPI inflation on Tuesday
  • Australian consumer confidence tanks as covid cases rise
  • Australian employment data in focus

At 14:30 UTC, the Australian Dollar US Dollar (AUD/USD) exchange rate is trading +0.2% higher close to session highs at US$0.7157. The pair has recovered from session lows of US$0.7109 from earlier in the day.

A broad risk on mood in the market has helped the risk sensitive Australian Dollar recover from session lows. The mood in the market has improved as data showed US inflation jumped in July. According to the Labour Department US consumers prices increased 0.6% month on month in July, well ahead of the 0.2% forecast.

The increase in consumer prices reflects a rebound in demand for goods and services as lockdown measures eased. The data revealed that inflation is closer than initially thought to returning to pre-pandemic levels.

Today’s numbers come following upbeat producer price index in the previous session, which measures inflation at wholesale level.

Rising inflation levels could encourage the Fed to adopt a slightly less dovish stance, particularly given that the Fed has seen little threat of inflation over the past few months.

The figures lifted sentiment with US stocks charging higher on the open. The data also overshadowed weak Australian domestic data earlier in the session.

The Australian Dollar started the day on the back foot after data revealed that consumer confidence in Australia plunged in August. The collapse in morale came following the resurgence of coronavirus and stage 4 lockdown restrictions being imposed on Melbourne.

The Westpac sentiment index plunged -9.5% to 79.5 in August, targeting the low levels reached in April. Consumer confidence is important because when sentiment declines, consumers rein in their spending, which has a negative impact on the economy.

Investors will now turn towards Australian employment data which is due to be released on Tuesday morning local time. Analysts are expecting the unemployment rate to rise to 7.8%, up from 7.4%. A weaker than forecast reading could drag on the Australian Dollar.