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Australian Dollar Outlook: Inflationary Theme in Spotlight as AUD/USD Sputters

Australian Dollar, AUD/USD, Inflation, CPI -Talking Points

  • Wall Street stocks extend losses from day prior as traders weigh risks
  • Inflationary pressures on global economy in focus as commodities rise
  • AUD/USD consolidation appears likely as the currency pair hovers near resistance

Wednesday’s Asia-Pacific Outlook

Asia-Pacific markets may continue to trade to the downside on Wednesday following another selloff on Wall Street, although losses may moderate. The benchmark S&P 500 index dropped 0.87%, while volatility spiked higher, with the VIX fear gauge rising near the 22 handle. Tuesday saw Hong Kong’s Hang Seng Index (HSI) drop over 2.0%.

Market participants appear worried over the impact rising inflation can inject into markets amid continuing upward pressure across commodities. Several S&P 500 companies have stated that a portion of input costs stemming from raw materials will pass down to consumers. The Federal Reserve maintains a transitory view on any coming inflationary rise, which may be reinforced by several Fed members set to speak over the next 24 hours. China’s April inflation figures fell short of expectations, with the YoY figure printing at 0.9% versus the consensus forecast of 1.0%.

Despite that, fears over a sustained rise in prices appear to be seeping into sentiment, with the implication being that it would cause policy makers to tighten policy. Investors will likely be evaluating those concerns not just for the time being but likely through the entire post-pandemic recovery. Tomorrow’s CPI print out of the United States will be key to gauging inflationary pressures in the market. According to the DailyFX Economic Calendar, the year-over-year forecast stands at 3.6%, with the prior read at 2.6%.

Meanwhile, Crude oil prices drifted slightly higher overnight as the Colonial pipeline shutdown in the US persist. Copper and iron ore prices are moving higher, a boost to the Australian Dollar as rising prices bolster the country’s export revenue streams. The Australian Dollar advanced against the US Dollar overnight.

Speaking of Australia, March final building permits is set to cross the wires this morning, with analysts expecting a print of 17.4% on a MoM basis. India, still grappling with a severe Covid outbreak, will release industrial and manufacturing production data, which could see industrial commodities like copper and iron ore react.

AUD/USD Technical Breakdown

The Australian Dollar appears to be in a phase of consolidation versus the US Dollar. AUD/USD is trading shortly below the 0.7850 level, which has posed as resistance this week thus far. MACD is trending to the upside, while the Relative Strength Index appears subdued at the 60 mark. A break higher could see the psychologically important 0.79 handle serve as resistance before aiming at the February swing high. Alternatively, a move lower would likely see 0.78 underpin prices.

AUD/USD Daily Chart

Chart created with TradingView

AUD/USD TRADING RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter


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