Dollar Mostly Flat After Inflation Meets Expectations

American inflation figures for August on 12th showed alignment with expectations, causing minimal market fluctuations as seasonal activity typically decreases near the middle of the month. This report highlights the latest developments influencing the US dollar, followed by brief analyses of the cable and AUD/USD charts. In July, U.S. annual headline inflation saw a minor drop to 3.4%, as anticipated, primarily due to a smaller increase in fuel prices compared to June, though the differences were modest.

Most other key components of headline inflation, such as rents, shelter, and food, remained unchanged or nearly so from the prior month. Since all core and non-core releases met expectations, volatility was significantly reduced compared to the average for inflation data, amplified by the release timing falling in the middle of August when markets typically exhibit less volatility.

The convergence of lower-than-expected jobless claims and reduced inflation has shifted focus away from more hawkish Federal Reserve expectations for now. With the labor market possibly decelerating or at least not accelerating, and inflation falling for two straight months while the annual headline is below the base interest rate, there is no pressing need for the Fed to raise rates in September.

As of August 13th, approximately 64% of CME FedWatch participants expect the Fed to maintain rates at its June 16th meeting, while about 52% anticipate at least one rate hike by October 28th. The chance of no rate change persisting into 2027 stands at 28%. Traders may now look towards the Fed's minutes release on August 19th, though it's unlikely to offer new insights given that the meeting preceded the recent weaker NFP and lower inflation.

Unless major events in the Gulf occur or overall sentiment shifts dramatically, major markets are expected to stay in a relatively dormant mode over the coming days, with low activity and volatility. The British pound's slightly better-than-expected GDP figures on August 13th kept the cable currency near its usual vicinity, hovering slightly under $1.35.

Despite a generally negative NFP report, U.S. inflation, as predicted on August 12th, did not generate significant price movement. With the Federal Reserve and Bank of England likely to stay around 3.5-3.75% for the near term, monetary policy influence appears limited for now; traders must wait until early next month for clearer indications of future rate adjustments.

The $1.35 level continues to act as a potential resistance barrier, which the current price is testing. However, a breakout around the middle of August appears unlikely unless unexpected news emerges. Volatility measured by Average True Range (ATR) is close to its lowest point, while trading volume remains seasonally low; however, slow stochastic signals are indicating an overbought condition.

If the price breaks above $1.35 later in August, the next target could be near May's highs around $1.36. The main moving averages have clustered closely together below the price as volatility and momentum have declined in August. The value area between the 100 and 200-day Simple Moving Averages (SMAs) around $1.343 could serve as a potential support level, while the 23.6% weekly Fibonacci retracement level near $1.335 may be more significant.

Given the seasonal conditions, an upward breakout in the context of upcoming British job data and inflation is doubtful unless these releases are genuinely surprising. The Australian dollar has maintained its strength since early August, as the Reserve Bank of Australia (RBA) indicated readiness to raise rates further if necessary, with a cumulative 0.75% of hikes set for 2026.

These actions suggest restrictive conditions in Australia, benefiting the Aussie dollar through carry trade against other major currencies. With no imminent threats to the stability of trade, the Australian dollar appears fundamentally robust, yet traders will monitor potential escalations in Gulf hostilities, which could exert downward pressure on AUD/USD.

The 100-day SMA around 70.6 cents acts as a key dynamic resistance, and the price has been testing this level for several days with little success. For AUD/USD, the recent price action mirrors that of the cable currency, but the context differs, suggesting that AUD may present a better buying opportunity compared to sterling against the greenback if volume returns in late August or early September.

The May high on this chart is more than two cents above the current price, so a confirmed break above resistance could provide a favorable risk-reward ratio if buying is considered. The 100% weekly Fibonacci retracement level just below 69 cents represents a strong potential source of support. In the short term, however, 70 cents is a more likely bounce point, acting as a psychological level and coinciding with the 200-day SMA.

While the article highlights the current market dynamics and potential price actions, traders should exercise caution as this information is based solely on the provided source and does not constitute trading advice.