Aussie Soars on Sticky Inflation, RBA Hawkish Pivot on the Horizo

Warren Takunda

Economic

Forex

Summary:

Aussie dollar surges on hot inflation data, RBA hawkish pivot eyed. AUD/USD tests resistance, key data from US on tap.

BUY AUDUSD

Close Time

CLOSED

0.65550

Entry Price

0.66180

0.64800

0.66431 +0.00048 +0.07%

75.0

Pips

Loss

0.64800

Exit Price

0.65550

Entry Price

0.66180

The Australian dollar (AUD) is on a tear, extending its winning streak to four sessions this week. As of Friday's European session, AUD/USD is trading at 0.6534, up 0.24%. This week's surge of 1.82% underscores the Aussie's newfound strength, fueled by hotter-than-expected inflation data.

The catalyst for the AUD's ascent is Australia's scorching Producer Price Index (PPI) release. Q1 data revealed a 4.3% year-on-year jump, exceeding forecasts of 2.6% and surpassing the previous quarter's 4.1% increase. Even on a quarterly basis, PPI remained unchanged at 0.6%, exceeding expectations. This surprise data echoes a similar trend in the recent Consumer Price Index (CPI) report. While annual CPI dipped slightly in April to 3.6% from 4.1%, it still outpaced analyst estimates of 3.4%. The implication is clear: producers are likely to pass on their rising costs to consumers, putting upward pressure on inflation.

The AUD's rally is a direct response to these robust inflation figures. The Reserve Bank of Australia (RBA) is likely to extend its hawkish stance, potentially delaying interest rate cuts as it prioritizes taming inflation. Talk of a rate hike is even a possibility, reflecting the RBA's concerns about a potential resurgence in inflation. The central bank's battle to achieve the elusive 2% target mirrors the Federal Reserve's struggle in the US, highlighting the global nature of the inflation challenge.

The week concludes with the release of the US Core PCE Price Index, the Fed's preferred inflation gauge. Forecasts anticipate a slight moderation to 2.6% y/y in April, down from 2.8% previously. Monthly data is expected to hold steady at 0.3%. Rising US inflation has already prompted the Fed to postpone its plans for easing rates. Today's data will be crucial in gauging the global monetary policy landscape and its potential impact on the AUD's momentum.

Technical Analysis

The technical outlook for AUD/USD paints a bullish picture, aligning with the positive fundamental factors. The pair is currently testing a key resistance level at 0.6555. A decisive break above this level could pave the way for a further climb towards 0.6618. This potential move upwards would be bolstered by a bullish crossover of the 50-day and 200-day moving averages, signifying a shift in momentum towards the bulls.

On the downside, support is situated at 0.6487 and 0.6424. These levels will act as potential buying zones if the price corrects. However, a sustained break below 0.6424 could indicate a weakening bullish bias and potentially trigger a deeper pullback.

Traders should also consider the Relative Strength Index (RSI). Currently, the RSI is hovering around 62, indicating that the pair is neither overbought nor oversold. This suggests there's still room for the rally to extend before encountering potential selling pressure.

Overall, the technical confluence of rising price action, potential moving average crossover, and a neutral RSI reading reinforces the bullish outlook for AUD/USD in the near term. The key breakout level of 0.6555 will be crucial to monitor, as a successful breach could open the door for a test of 0.6618. However, vigilant observation of support levels and RSI readings remains essential for identifying potential reversals or short-term corrections.

TRADE RECOMMENDATION

BUY AUDUSD

ENTRY PRICE : 0.6555

STOP LOSS : 0.6480

TAKE PROFIT : 0.6618

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