- Australian dollar loses ground against green USD as AUD/USD loses 0.46%.
- Will the Australian PMI call into question the RBA rising aggressively?
- The Fed’s Powell commented that if inflation doesn’t ease, they will move “more aggressively.”
- AUD/USD Price Forecast: Failure at 0.7051 sent the pair below 0.7000.
The AUD/USD is paring some of Tuesday’s gains, having hit a daily high around 0.7046, but fell on a lower-than-expected Australian Wage Price Index (WPI), calling into question the Reserve Bank of Australia’s (RBA) is going to adjust monetary policy at a faster pace than other central banks in the world, such as the Federal Reserve, in the United States. At 0.6994, AUD/USD extends its losses, also helped by market malaise.
Will Australia’s PMI call into question the RBA’s aggressive rate hike?
During the Asian session, the wage price index rose 2.4% yoy, lower than the 2.5% forecast, while the quarterly reading grew 0.7%, also lower than the 0.8% forecast. Although both readings grew more than in the previous period, they are still below Australia’s high inflation rate, which stood at 3.7%, the highest level since 2009, with headline inflation reaching 5.1%.
The RBA sees wage growth gradually accelerating to 2.7% in June and 3% by the end of the year. However, the latest reading will disappoint the central bank, which raised rates in May hoping to enter a wage spiral, although the PMI report showed otherwise. Meanwhile, money market futures lowered expectations of an RBA rate hike in June, down to a 92% chance from a 100% chance of a 25 basis point hike.
Analysts at ANZ Bank lowered their forecast by 40 basis points, attributed to the WPI figures. They write in a note that “the RBA is likely to raise the cash rate by another 25 basis points in June, rather than a larger hike of 40 or 50 basis points. But there is still some big data to come, with the release of the April labor market tomorrow and average hourly earnings in the National Accounts on June 1”.
“Aggressive” Powell boosts USD outlook
Separately, on Tuesday, Federal Reserve Chairman Jerome Powell said that “what we need to see is inflation coming down in a clear and convincing way, and we’re going to keep pushing until we see that.” If the central bank sees no clear evidence of slowing inflation, Powell stressed that “we will have to consider moving more aggressively.”
Meanwhile, the US Dollar Index trims Tuesday’s losses and advances strongly, gaining 0.36% to 103.676, which is also a headwind for AUD/USD. By contrast, US Treasury yields are trading lower on the day, down seven and a half basis points to 2,919%.
Before the open on Wall Street, the US economic docket revealed building permits and additional housing data, which were mixed. Building permits rose to 1.819 million, better than the 1.812 million expected. However, housing starts grew at a slower pace, reaching 1.724 million, down from an estimated 1.765 million, beginning to show signs of tightening from the Federal Reserve. Later in the day, Patrick Harker of the Philadelphia Fed will give remarks.
AUD/USD Price Forecast: Technical Outlook
Tuesday’s AUD/USD price action was attributed to a better market mood as China reported better handling of the coronavirus crisis. However, the failure of the AUD/USD bulls to recapture the 0.7051 level left the pair exposed to selling pressure as the AUD/USD bears entered the market following the PMI figures below than expected and sent the pair towards fresh daily lows below 0.7000.
That said, the first support for the AUD/USD would be the Jan 28 low at 0.6967. A break below would expose 0.6900, followed by the year’s low at 0.6828.
|Last Price Today||0.701|
|Today’s Daily Change||-0.0018|
|Today’s Daily Change %||-0.26|
|Today’s Daily Opening||0.7028|
|20 Daily SMA||0.7095|
|50 Daily SMA||0.7293|
|100 Daily SMA||0.7243|
|200 Daily SMA||0.7267|
|Previous Daily High||0.7041|
|Previous Daily Minimum||0.6966|
|Previous Maximum Weekly||0.7074|
|Previous Weekly Minimum||0.6828|
|Monthly Prior Maximum||0.7662|
|Previous Monthly Minimum||0.7054|
|Daily Fibonacci 38.2%||0.7012|
|Daily Fibonacci 61.8%||0.6995|
|Daily Pivot Point S1||0.6982|
|Daily Pivot Point S2||0.6937|
|Daily Pivot Point S3||0.6907|
|Daily Pivot Point R1||0.7057|
|Daily Pivot Point R2||0.7087|
|Daily Pivot Point R3||0.7132|
Source: Fx Street