Contents
The Australian dollar (AUD) faced headwinds on Wednesday, extending losses for the second consecutive day. This decline comes after the release of Australia’s Consumer Price Index (CPI) data, which showed a softer-than-expected inflation reading. The data potentially paves the way for a more dovish stance from the Reserve Bank of Australia (RBA) regarding interest rates, exerting downward pressure on the AUD.
Australian Inflation Data Disappoints
Australia’s monthly CPI (YoY) rose by 3.4% in February, which was in line with previous levels but fell short of the anticipated 3.5% increase. This figure marked the lowest inflation rate since November 2021. This tepid inflation data comes on the heels of a decline in Westpac Consumer Confidence on Tuesday. The index dipped 1.8% to 84.4 in March 2024 from February’s 86.0, easing from 20-month highs. The confluence of these factors has weighed on the AUD.
US Dollar Finds Strength in Risk Aversion
Meanwhile, the US dollar index (DXY) gained ground for the second day in a row amid a risk-off sentiment prevailing in the market. This cautious outlook stems from anticipation surrounding the upcoming release of US Personal Consumption Expenditures (PCE) data scheduled for Friday. However, the decline in US Treasury yields, possibly reflecting expectations of potential rate cuts by the US Federal Reserve (Fed), could limit the advances of the US dollar.
Market Movers Impacting the Australian Dollar
- Australia’s Westpac Leading Index (MoM): Offered a glimmer of hope, increasing by 0.1% in February compared to the previous decline of 0.09%.
- Australian Minimum Wage Increase: The Australian government pledged to support a minimum wage increase aligned with inflation this year, acknowledging the challenges faced by low-income families due to rising living costs.
- Chinese Monetary Policy: According to a Bloomberg survey, economists expect the People’s Bank of China (PBoC) to implement two additional Reserve Requirement Ratio (RRR) cuts in 2024, totaling a reduction of 50 basis points.
- US Durable Goods Orders: The data for February came in better than expected, rising by 1.4% against the anticipated 1.3% increase. This follows a previous decline of 6.9%.
- US Housing Price Index (MoM): Dipped slightly by 0.1% in January, reversing December’s increase of 0.1%.
Technical Outlook for AUD/USD
The AUD/USD pair is currently trading near 0.6520. Key support levels to watch include the psychological level of 0.6500, followed by March’s low at 0.6477. A break below this level could see the pair test the major support of 0.6450. On the upside, immediate resistance may be encountered around the 23.6% Fibonacci retracement level of 0.6541, which aligns with the major barrier of 0.6550 and the 21-day Exponential Moving Average (EMA) at 0.6553.
Conclusion
The Australian dollar is facing a confluence of headwinds, with softer-than-expected inflation data and a risk-averse market environment dampening its prospects. The upcoming US PCE data release and the direction of US monetary policy will be key factors to watch in the near future. While the AUD faces near-term pressure, technical analysis suggests potential support levels that could offer some reprieve.
