Australian Dollar, AUD/USD, USD, PMI, RBA Minutes, Trends – Hot Topic
- of Australian dollar It seems to be treading water for now
- RBA meeting minutes show inflation Predictions under review
- Is the trend underway or does it offer a breakout AUD/USD direction?
Recommended by Daniel McCarthy
How to trade AUD/USD
The Australian dollar started to consolidate this week with strong PMI data and RBA meeting minutes released today.
The Jibun Bank Composite PMI for February was 49.2, an improvement from 48.2 in the previous month, but it remains in a downward trend of 50.
The RBA meeting minutes revealed most of what the market already knew. Headline inflation was expected to fall to 4¾% by the end of 2023, based on the technical assumption that the cash rate will rise to 3¾% over time, they said.
Futures markets are pricing in a cash rate peak of 4.20% later this year.
While there are many bright spots in the outlook for the Australian economy, a potential problem could lie in the fact that the CPI is outpacing both PPI and wage inflation.
The year-on-year CPI by the end of 2023 was 7.8%, and the PPI for the same period was 5.8%. Tomorrow, the Australian Bureau of Statistics (ABS) releases its wage price index. A Bloomberg survey of economists forecasts a 3.5% increase for the year to the end of December.
The sharpest part of the monetary policy ax is mortgages, but businesses will also face higher funding costs when policy tightens.
Looking at the aforementioned inflation gauge suggests that firms may now be able to pass on increasing input costs at a faster rate than they actually are.
This could be a concern for the RBA if entrenched/embedded inflation expectations are highlighted as a problem.
If consumers are able to bear the brunt of rising input costs and expanding corporate profit margins, it could suggest that pressure on consumer prices is still building.
If the Q1 CPI rises again, the RBA will have to reassess its interest rate outlook, which could affect AUD/USD.
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AUD/USD Technical Analysis
The Australian dollar has stabilized this week, staying within the uptrend channel.
AUD/USD appeared to be on the decline last Friday as it briefly broke below the short-term uptrend line. Support is found before the long-term uptrend line forming the lower band of the uptrend channel.
The 200-day Simple Moving Average (SMA) is currently near its trend line and may continue to provide support near 0.6800. The 0.6812 low seen last week could also provide support.
A series of breakpoints and previous lows in the 0.6855 – 0.6877 area can also become support zones.
This week’s gains have struggled to overcome the 260-day SMA currently at 0.6915. A breakout of the 260-day SMA or a breakout of the 200-day SMA could lead to momentum building in that direction.
On the upside, resistance may be offered at breakpoints at 0.6984, 0.6996, 0.7011, 0.7030 and the previous peak. The 21-day SMA is currently near 0.6984, which could provide resistance.
You can read the minutes of the RBA meeting here.
AUD/USD daily chart
Chart created with TradingView
— Written by DailyFX.com Strategist Daniel McCarthy
To contact Daniel, use the comments section below, or @DanMcCathyFX on Twitter