The Australian Dollar (AUD) is currently sitting on key support levels in a cautious Tiger markets ahead of key inflation data expected in a few days. The AUD/USD pair is currently trading at 0.6398. That’s a day-over-day decrease of 0.49%. Australia’s inflation rate may deeply drop even more. This economic downturn may indirectly affect future decisions regarding monetary policy set by the Reserve Bank of Australia (RBA).
Both levels have been widely reported, but traders will be watching primarily the support at 0.6412 with an extra support level observed at 0.6389. So market sentiment seems relatively cautious across the board as we head into Australia’s first-quarter CPI release on Wednesday. Analysts are forecasting a further decline in the inflation rate to 2.3%. This comes on top of the previous 2.4% reading, which was itself the lowest going back to Q1 2021.
Current Market Conditions
Today’s trading ranges suggest an uneasy market atmosphere for the pair. Currently, as it swings around this 0.6398 level, traders are focused on the strength of the support level at 0.6412 as it faces bullish pressure. On the upside, the currency pair has found resistance at 0.6456 and 0.6479. This would make it harder for any upward mobility.
The recent fall of the Australian Dollar is due to more macro economic factors – especially inflationary pressures. The inflation reading for the prior quarter shot up to 2.4%. Government subsidies for electricity and fuel were the main contributors to this, lowering goods inflation and overall inflation as a result.
Economists argue a further fall in inflation would strengthen the case for an RBA rate cut. A Fed rate cut would try to juice the economy with cheaper loans and credit cards. Its effectiveness depends on what happens to inflation and labor market metrics going forward.
Impacts of Inflation on Monetary Policy
That leads us to Europe’s inflation situation, which has thrown many observers for a loop. Although the headline inflation rate has been coming down, core CPI continues to be sticky above the Fed’s 2% goal. Core prices are persistently sticky to the upside. This means that, while overall inflation is starting to come down, core price pressures are robust.
According to the most recent data, Q4 ended up with a 2.4% gain. That surge was largely due to federal pandemic relief rather than natural economic expansion. Analysts are already doubting whether such a low reading of inflation is sustainable. They think it is basically based on ongoing government largesse or a major re-location of economic activity.
The AUD/USD pair outlook is influenced by the upcoming nonfarm payrolls report. Overall, markets are bracing for an especially bad report of around 135,000 jobs. Taken together, this positive news could change the perception of economic strength both in the United States and globally. If these job numbers should fail, it could further increase pressure for a bolder monetary intervention from the RBA.
Future Projections and Investor Sentiment
With the CPI data release on Wednesday, though, it is a very mixed sentiment among investors. If inflation continues to decline, this will embolden calls for the RBA to respond. This could push them to introduce aggressive cuts or pre-emptively cut rates to keep their economies humming. Conversely, if inflation surprises to the upside, it could lead to increased scrutiny on the central bank’s current policy stance.
Market participants have one eye glued to the global economic scoreboard. These factors can significantly impact currency valuations and investor confidence. Domestically created economic indicators, such as CPI, are going to be impacted by the international factors, including things like employment data. This interaction will be important in setting expectations for AUD in the months ahead.