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AUD/USD on thin ice ahead of inflation data

AUD/USD drops to a new low amid US higher rates and geopolitical tensions, with Australia's economy and China's recovery offering slight support. Focus turns to this week's inflation report.

Source: Getty

The AUD/USD has been on the back foot for most of 2024, and last week was no different as it recorded its lowest weekly close since November 2023 at .6433.

Economic and geopolitical waves impacting AUD/USD

Last week's decline came after Fed chair Jerome Powell acknowledged that the central bank would need to keep rates higher for longer to tackle sticky inflation, which boosted the US dollar. As did an escalation in Middle Eastern geopolitical tensions, which led to risk aversion flows.

Helping to keep the AUD/USD's head above water, the currency appears cheap when compared to surging commodities; and against the backdrop of a resilient Australian economy, and increasing signs of improvement in the Chinese economy.

This week's key local focus for the AUD/USD will be Wednesday's Q1 2024 inflation report. However, in this climate, it's debatable whether a firmer inflation print would benefit the beleaguered battler.

What is expected in Q1 2024 CPI report

Date: Wednesday, 24 April at 11.30am AEST

In December 2023 quarter (Q4), inflation rose by 0.6% for an annual rate of 4.1% YoY, below the 4.3% expected and well below the 5.4% print of the September quarter. The RBA's preferred measure of inflation, trimmed mean inflation, rose by 0.8% QoQ, which saw the annual measure of Trimmed Mean ease to 4.2% YoY, a significant drop down from 5.2% in the September quarter.

Michelle Marquardt, ABS head of prices statistics, said: "The CPI rose 0.6 per cent in the December quarter, lower than the 1.2 per cent rise in the September 2023 quarter. This was the smallest quarterly rise since the March 2021 quarter." The March 2024 quarter (Q1) is expected to show headline inflation increased by 0.8% QoQ, for an annual rate of 3.5%. The Trimmed Mean is expected to rise by 0.8% QoQ, allowing the annual trimmed mean to ease to 3.8% YoY.

This would be the slowest rate of Trimmed Mean inflation since March 2022; and in line with the RBA's implied forecast. However it is still too high for the RBA to consider rate cuts before August at the earliest.

AU annual headline inflation

Source: TradingEconomics

AUD/USD technical analysis

On the weekly chart, the AUD/USD continues to move sideways within a contracting multi-month bearish triangle. Downtrend resistance from the January 2023 .7158 high is currently at .6765ish. Uptrend support from the October 2022 .6170 low is at .6330ish.

AUD/USD weekly chart

Source: TradingView

Last week, the AUD/USD cascaded through several important support levels, including the year-to-date low of .6442, to print a fresh five-month low of .6362, just ahead of our weekly support at .6330ish.

The easing in geopolitical tensions over the weekend has supported a modest rally in the AUD/USD at the start of the new week, helping it to start working off oversold readings. To open up a stronger rebound to the 200-day moving average at .6530, the AUD/USD needs to clear short-term resistance at .6450/60ish.

A failure to do so would leave the AUD/USD in danger of breaking through critical support at .6350/30 towards .6270 and then the support provided by the October 2022 .6170 low.

AUD/USD daily chart

Source: TradingView
  • Source TradingView. The figures stated are as of 22 April 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.

This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.

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