Australian Dollar Outlook: Inflationary Theme in Spotlight as AUD/USD Sputters

(MENAFN- DailyFX) Australian Dollar, AUD/USD, Inflation, CPI -Talking Points

• stocks extend losses from day prior as traders weigh risks
• Inflationary pressures on global economy in focus as commodities rise
• consolidation appears likely as the currency pair hovers near resistance

Asia-Pacific markets may continue to trade to the downside on Wednesday following another selloff on Wall Street, although losses may moderate. The benchmark index dropped 0.87%, while volatility spiked higher, with the VIX fear gauge rising near the 22 handle. Tuesday saw Hong Kong’s Hang Seng Index ( ) drop over 2.0%.

Market participants appear worried over the impact rising inflation can inject into markets amid continuing upward pressure across commodities. Several S & P 500 companies have stated that a portion of input costs stemming from raw materials will pass down to consumers. The Federal Reserve maintains a transitory view on any coming inflationary rise, which may be reinforced by . China’s April inflation figures fell short of expectations, with the YoY figure printing at 0.9% versus the consensus forecast of 1.0%.

Despite that, fears over a sustained rise in prices appear to be seeping into sentiment, with the implication being that it would cause policy makers to tighten policy. Investors will likely be evaluating those concerns not just for the time being but likely through the entire post-pandemic recovery. Tomorrow’s CPI print out of the United States will be key to gauging inflationary pressures in the market. According to the DailyFX Economic Calendar, the year-over-year forecast stands at 3.6%, with the prior read at 2.6%.

Meanwhile, . and iron ore prices are moving higher, a boost to the as rising prices bolster the country’s export revenue streams. The Australian Dollar advanced against the overnight.

Speaking of Australia, March final building permits is set to cross the wires this morning, with analysts expecting a print of 17.4% on a MoM basis. India, still grappling with a severe Covid outbreak, will release industrial and manufacturing production data, which could see industrial commodities like copper and iron ore react.

The Australian Dollar appears to be in a phase of consolidation versus the US Dollar. AUD/ is trading shortly below the 0.7850 level, which has posed as resistance this week thus far. MACD is trending to the upside, while the Relative Strength Index appears subdued at the 60 mark. A break higher could see the psychologically important 0.79 handle serve as resistance before aiming at the February swing high. Alternatively, a move lower would likely see 0.78 underpin prices.

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--- Written by Thomas Westwater, Analyst for DailyFX.com

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