AUD/USD faces slight drop amid US inflation data anticipation
- AUD/USD slightly down in early Asian trading, reflecting Monday's cautious market mood.
- US inflation expectations set for Tuesday's release, with forecasts suggesting varied changes in CPI figures.
- Australian economic outlook to be clarified with upcoming consumer and business confidence polls, alongside building permits data.
The AUD/USD begins Tuesday’s Asian session with minuscule losses, following Monday’s -0.19% performance on a risk-off impulse as traders brace for the release of US inflation data. At the time of writing, the pair exchanges hands at 0.6612, with losses of 0.02%.
Aussie Dollar’s await domestic and US inflation data
Wall Street ended Monday’s session with losses. Data-wise, the US New York Fed Inflation expectations report for one year was anchored at 3%, unchanged from the previous reading. On Tuesday, the US Bureau of Labor Statistics (BLS) is expected to reveal that inflation in February stood at 3.1% in yearly figures, while monthly figures would aim high from 0.3% to 0.4%. The Core Consumer Price Index (CPI) is expected to drop in annual and monthly data, at 3.7% from 3.9% and 0.3% from 0.4%.
If the data comes higher than expected, that can pave the way for further AUD/USD downside, as traders would trim bets that the US Federal Reserve would ease policy as soon as June. Otherwise, that could open the door for discussions at the May meeting.
On Australia’s front is the ANZ Consumer Confidence Poll and the NAB Business Confidence for February are going to be released. After those two polls, traders await Building Permits data for January, which is expected to improve from -10.1% to -1%.
AUD/USD Price Analysis: Technical outlook
The AUD/USD has printed back-to-back bearish candles that could be forming an ‘evening star’ chart pattern that could open the door for a pullback. If sellers drag the exchange rate below 0.6600, that could open the door toward the 50-day moving average (DMA) at 0.6576, ahead of the 100-DMA at 0.6572. Further losses are seen below the 200-DMA at 0.6560, exposing the 0.6500 mark. On the other hand, traders need to conquer the March 11 high at 0.6627 before challenging 0.667, March 8’s high.
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.