AUD/USD regains strength but remains threatened by economic slowdown
The Australian dollar is recovering this morning against all major currencies, including the strong US dollar, following better than expected inflation data. Australia’s inflation rate rose to 5.1% in the first quarter from 3.5% in the previous quarter and well above market estimates of 4.6%. Meanwhile, the RBA’s favorite measure, the Trimmed Mean CPI, beat the central bank’s 2-3% target to hit 3.7%, a 12-year high.
Naturally, this new data reinforces market participants’ expectations of RBA monetary tightening, as we can see with Australian bond yields in the near term. The 1-year rate jumped by 15bps and the 2-year rate by 10bps this morning.
The Australian dollar is regaining ground, but the outlook against the greenback remains in the background bearish due to the slowing global economy and the recent deterioration in the economic situation in China, Australia’s main trading partner, in due to the tightening of health restrictions.
As the Australian dollar is a very cyclical currency, it should remain under pressure as long as the global economy slows down. The evolution of health restrictions in China and the war in Ukraine will therefore be very important for the “loonie”.
AUD/USD daily price chart – key levels