Australian Dollar Off Lows After CPI; What’s Next for AUD/USD?
Data released indicates that Australian price pressures remain high, providing the Reserve Bank of Australia with the potential to further tighten monetary policy. As a result, the Australian dollar initially experienced a decline against the US dollar, but subsequently regained its value.
Australia’s Consumer Price Index (CPI) increased by 7% on a year-on-year basis during the January-March quarter, which was higher than the expected rate of 6.9%, compared to the previous quarter’s rate of 7.8%. This surge in CPI is well above the target range of 2%-3% set by the central bank. On a quarter-on-quarter basis, CPI rose by 1.4%, slightly higher than the expected rate of 1.3% but lower than the previous quarter’s rate of 1.9%. The trimmed mean, which excludes volatile price movements, slowed down to an increase of 1.2% on a quarterly basis, lower than the expected increase of 1.4% and significantly lower than its previous quarter’s growth rate of 1.7%. This moderation in inflation towards RBA’s target suggests that it might not be appropriate to assume an end to its tightening cycle at this point. Based on these developments, market participants are now projecting that RBA Cash Rate will be around 3.81% by August, up from its current level of 3.6%, and above its pre-CPI data level of 3.72%.
Australia inflation and the Economic Surprise Index
Recent Australian macroeconomic data has been disappointing, as evidenced by the Economic Surprise Index. Despite a tight job market with unemployment at historically low levels, indications of moderation in labor market activity are beginning to emerge. The outlook for the economy is subject to downside risks due to external factors such as the potential for recession in the United States and credit market tightening resulting from stress in the banking sector.
AUD/USD 5-minute Chart
Recent Australian macroeconomic data has been disappointing, as evidenced by the Economic Surprise Index. Despite a tight job market with unemployment at historically low levels, indications of moderation in labor market activity are beginning to emerge. The outlook for the economy is subject to downside risks due to external factors such as the potential for recession in the United States and credit market tightening resulting from stress in the banking sector.
AUD/USD Daily Chart
China’s recent macro data have exceeded expectations, leading analysts to improve their economic forecast for the world’s second largest economy by 2023. Australia’s growth prospects may also be positively impacted given China’s status as its largest export market. Overall, barring any decrease in risk appetite, the current macro perspective suggests a balanced outlook for AUD/USD.
On technical charts, AUD/USD has settled in a narrow range recently, with the downside marked at the March low of 0.6550, while the topside is capped under a tough ceiling around the 89-day moving average, roughly coinciding with the early-April high of 0.6795. On the downside, immediate support is at 0.6625. AUD/USD needs to cross the upper edge of the range for the outlook to turn constructive.
