Aussie steady after nasty slide
The Australian dollar stabilized after a sharp downturn, losing over 300 points since Thursday. At time of writing, AUD/USD was trading below the 72 line and was close to a 2-month low.
All eyes were on Australia’s inflation report for March, with CPI rising higher than the expected 4.6% YoY, after a 3.5% gain in February. This marked the highest rate of inflation since the GFC, as soaring food and fuel prices continue to drive inflation higher.
The RBA may well respond with an oversized 0.40% increase at the policy meeting on May 3.
The strong inflation report should give the Australian dollar a boost.
The central bank, which last raised rates in 2010, would prefer to stay on the sidelines during the current election campaign or raise rates by a very modest 0.15%.
The problem is that with inflation showing no signs of easing, policymakers may feel they can’t wait until June to hike rates.
The Federal Reserve, which has already embarked on its rate-hike cycle, has been sending out hawkish messages to the markets.
Last week, Fed Chair Powell reiterated that a 0.50% rate increase was on the table, and according to CME’s Fed Watch, there was a 98% likelihood of a 0.50% hike at the May 4 meeting.
With the Fed expected to tighten rates to 3% or higher by the end of the year, the rate-hike cycle should boost the US dollar in the coming months.
The Australian dollar, which was trading just shy of the 0.76 in early April, benefited from the surge in commodity prices. Now that commodities, especially Iron ore, were falling in price, the Aussie was dropping along for the ride.
Concerns over China’s growth were also weighing on the Australian dollar, as China is Australia’s number one trading partner.
AUD/USD Technical
- There was resistance at 0.7253 and 0.7390
- AUD/USD broke through support at 0.7167. Below there was support at 0.7089
