The Australian Dollar (AUD) navigated through a volatile trading session on Thursday, characterized by a tendency to strengthen amidst speculations surrounding potential interest rate adjustments by the Federal Reserve (Fed). Conversely, the Reserve Bank of Australia (RBA) hinted at the possibility of further rate hikes. RBA Governor Michelle Bullock recently underscored that Australia’s inflation is predominantly “homegrown” and “demand-driven,” attributing it to the robust labor market and escalating wage inflation. However, the RBA does not foresee inflation reverting to target levels until 2026.
The Australian Dollar faced downward pressure attributed to a downturn in the S&P/ASX 200 Index, driven primarily by declines in the financial sector, which outweighed gains made by iron ore miners. Notably, shares linked to major Australian financial institutions, including Westpac Banking, Commonwealth Bank, ANZ Group, National Australia Bank, and Macquarie Group, experienced significant losses. Traders keenly awaited the release of the US Core Producer Price Index (PPI) and Retail Sales data on Thursday, poised to influence market sentiment and the trajectory of the AUD/USD pair.
In other market movements, Australia’s NAB Business Confidence Index dipped to 0 in February from the previous month’s reading of 1, while the NAB Business Conditions Index improved to 10 from the revised reading of 7 (initially reported as 6). Former RBA Governor Philip Lowe echoed current Governor Michelle Bullock’s cautionary stance on interest rates, highlighting the possibility of a two-way risk.
Looking ahead, Chinese Foreign Minister Wang Yi is scheduled to engage with Australia’s Foreign Affairs Minister Penny Wong in Canberra on March 20, addressing a spectrum of topics including economic matters such as the removal of trade barriers, alongside sensitive issues such as human rights and regional security.
Meanwhile, US Treasury Secretary Janet Louise Yellen expressed skepticism about a return to pre-pandemic interest rate levels, affirming the reasonableness of the interest rate assumptions outlined in Biden’s budget plan. The probability of a rate cut in March, as per the CME FedWatch Tool, dwindled to 1.0%, while May indicates a 9.6% probability. However, probabilities for rate cuts in June and July stand at 67.2% and 84.2%, respectively.
In economic indicators, the US Consumer Price Index (CPI) for February exceeded estimates at 3.2% year-over-year, surpassing January’s reading of 3.1%. The Core CPI also increased by 3.8% year-over-year, slightly above expectations. However, the Monthly Budget Statement in February revealed a deficit of $296 billion, albeit lower than anticipated.
From a technical perspective, the Australian Dollar traded near 0.6630 on Thursday, with resistance levels at 0.6650 and 0.6667, while support levels rest at 0.6614 and 0.6600, among others. Continued monitoring of market dynamics and economic indicators remains crucial for investors navigating the AUD/USD pair’s movements.
