The Australian Dollar (AUD) has shown resilience amidst a mixed bag of economic indicators, with positive sentiment prevailing despite lower-than-expected Wage Price Index (Q1) figures released by the Australian Bureau of Statistics. The index, serving as a barometer for labor cost inflation, recorded a marginal increase below market expectations. However, the AUD’s appreciation can be attributed to an uptick in risk appetite among investors.
Meanwhile, Australia’s 2024-25 Budget has reverted to a deficit after a surplus of $9.3 billion in the previous fiscal year. The government aims to combat headline inflation and alleviate cost-of-living pressures by earmarking funds to reduce energy bills and rents, in addition to initiatives aimed at lowering income taxes.
In contrast, the US Dollar Index (DXY) has continued to falter for the second consecutive session, with investors digesting higher-than-anticipated Producer Price Index (PPI) data for April while awaiting Wednesday’s Consumer Price Index (CPI) report.
Federal Reserve Chair Jerome Powell has projected a sustained decline in inflation, expressing less confidence in disinflationary trends compared to previous assessments. Powell highlighted the expected GDP growth of 2% or higher, attributing this positive outlook to the robustness of the labor market.
Market Movers:
Australia’s Wage Price Index (QoQ) saw a 0.8% increase in the first quarter, slightly below expectations, while on a year-over-year basis, it rose by 4.1%.
The US Bureau of Labor Statistics reported that the Producer Price Index (PPI) surged by 0.5% month-over-month in April, surpassing forecasts, with the Core PPI also exceeding expectations.
Treasurer of Australia Jim Chalmers anticipates headline inflation to return to the Reserve Bank of Australia‘s target range of 2-3% by year-end, potentially leading to earlier interest rate cuts.
Australia’s Treasury projects inflation to re-enter the RBA’s target range by the end of 2024, aligning with forecasts of CPI inflation decreasing to 3.75% by mid-2024 and 2.75% by mid-2025.
The Federal Reserve Bank of New York’s consumer sentiment survey indicates US consumers expect inflation to accelerate over the next year, with expectations rising to 3.3%.
Technical Analysis:
The AUD/USD pair hovers around 0.6630, consolidating within a symmetrical triangle pattern. With the 14-day Relative Strength Index (RSI) signaling a bullish bias above the 50 level, the pair may target the upper boundary near 0.6650 and potentially revisit March’s high at 0.6667. Conversely, immediate support lies at the psychological level of 0.6600, followed by the 14-day Exponential Moving Average (EMA) at 0.6585. Further downside pressure could see the pair testing the lower boundary of the symmetrical triangle around 0.6465.
