AUD to USD Forecast: Australian Economy in Focus Amid RBA Rate Path Speculation

Economic

Forex

Summary:

On Wednesday, the Australian MI Leading Index will draw investor interest. Overnight comments from Fed Chair Powell could resonate as investors monitor news updates from the Middle East.

Australian Economy in the Spotlight

On Wednesday, economic data from Australia will influence buyer demand for the AUD/USD. The Westpac/Melbourne Institute (MI) Leading Index will be in focus. Economists forecast the MI Leading Index to increase 0.2% in March after advancing 0.1% in February.

The Index provides investors with an outlook for the Australian economy. Components include the ASX 200, commodity prices, labor market-related indicators, yield spreads, consumer sentiment, and US industrial production.

Given investors' focus on the RBA interest rate decision in May, attention to the Index's sub-components is warranted. Labor market conditions will be a focal point ahead of official labor market numbers on Thursday.

Weaker labor market-related sub-components could influence bets on an RBA rate cut. A deteriorating labor market could affect wage growth and reduce disposable income. Downward trends in disposable income would impact consumer spending and dampen demand-driven inflation.

In addition to the data, monitoring stimulus discussions from Beijing and news updates from the Middle East is crucial.

US Economic Calendar: Fed Speakers in the Spotlight

On Wednesday, investors should monitor FOMC member speeches throughout the day. FOMC members Michelle Bowman and Loretta Mester are on the calendar to speak.

After the hawkish overnight comments from Fed Chair Powell, FOMC member alignment could further reduce bets on a 2024 Fed rate cut. On Tuesday, Fed Chair Powell stated that the Fed needed more confidence about inflation returning to target.

Fed Chair Powell impacted investor sentiment regarding the Fed rate path.

According to the CME FedWatch Tool, the probability of a 25-basis point Fed June rate cut fell from 56.1% (April 9) to 18.8% (April 16). The chances of the Fed leaving interest rates at 5.50% in September increased from 8.5% to 31.5% over the same period.

Short-Term Forecast

Near-term AUD/USD trends will likely hinge on Australian employment data, stimulus chatter from Beijing, and Fed speakers. Weaker Australian labor market data could tilt monetary policy divergence toward the US dollar. However, a stimulus package from Beijing would boost buyer appetite for the Aussie dollar.

AUD/USD Price Action

Daily Chart

AUD to USD Forecast: Australian Economy in Focus Amid RBA Rate Path Speculation_1

The AUD/USD sat well below the 50-day and 200-day EMAs, confirming the bearish price trends.

An Aussie dollar breakout from the April 16 high of $0.64446 would support a move to the $0.64582 resistance level. A break above the $0.64582 resistance level would bring the $0.65 handle and the 50-day EMA into play.

Considerations should include stimulus discussions from Beijing, updates from the Middle East, and statements from the Fed.

Conversely, an AUD/USD drop below the $0.64 handle could give the bears a run at the $0.62713 support level.

Given a 14-period Daily RSI reading of 35.73, the AUD/USD could fall to the $0.63500 level before entering oversold territory.

Source: FX Empire

To stay updated on all economic events of today, please check out our Economic calendar

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Cohen

Economic

Central Bank

Federal Reserve Chair Jerome Powell signaled policymakers will wait longer than previously anticipated to cut interest rates following a series of surprisingly high inflation readings.

Powell pointed to the lack of additional progress made on inflation after the rapid decline seen at the end of last year, noting it will likely take more time for officials to gain the necessary confidence that price growth is headed toward the Fed’s 2% goal before lower borrowing costs.

If price pressures persist, he said, the Fed can keep rates steady for “as long as needed.”

“The recent data have clearly not given us greater confidence and instead indicate that is likely to take longer than expected to achieve that confidence,” Powell said Tuesday in a panel discussion alongside Bank of Canada Governor Tiff Macklem at the Wilson Center in Washington.

“Given the strength of the labor market and progress on inflation so far, it is appropriate to allow restrictive policy further time to work and let the data and the evolving outlook guide us,” he said.

Powell’s remarks represent a shift in his message following a third straight month in which a key measure of inflation exceeded analysts’ forecasts. It also shows officials see little urgency to cut rates and suggests that any reductions in 2024 may come relatively late in the year, if at all.

Policymakers narrowly penciled in three interest-rate cuts in forecasts published last month, but investors are now betting on just one to two cuts this year, futures markets show. The Federal Open Market Committee, the group of officials that sets interest rates, next meets April 30-May 1.

“Their confidence has been shaken,” said Kathy Bostjancic, chief economist at Nationwide Mutual Insurance Co. “He confirmed and emphasized what the markets were already pricing in based on the economic data.”

Treasury yields reached fresh year-to-date highs — with the two-year note’s briefly exceeding 5% and reaching the highest level since November — after Powell signaled the Fed is in no hurry to cut rates.

The US economy continues to surprise Fed officials with its resilience. Employers added over 300,000 jobs in March — the most in nearly a year — and retail sales topped expectations. That strength has coincided with a pickup in price pressures in 2024, raising concerns about a stalling in progress toward the central bank’s inflation goal.

Earlier Tuesday, Fed Vice Chair Philip Jefferson said he expects inflation will continue to moderate with interest rates at their current level but persistent price pressures would warrant holding borrowing costs high for longer. Richmond Fed President Thomas Barkin said some recent data, including the consumer price index, has not “been supportive” of a soft landing.

Source：Bloomberg

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Kevin Du

Economic

Forex

Exports gained 7.3% in March from a year earlier, with growth slightly decelerating from February's 7.8% gain, the finance ministry reported Wednesday. Economists had forecast a 7% increase. Imports fell 4.9%, compared with the consensus estimate of a 5.1% decline.

Wednesday's data showed that the economy continues to benefit from the effects of a sliding yen that is giving a flattering gloss to the underlying export trend. The yen averaged 149.45 to the dollar in the latest month, 10.7% weaker than 134.97 in the previous year, the ministry said. That helped inflate the value of some shipments in yen terms. By volume, exports declined by 2.1%.

“I feel that the March exports growth was largely due to the currency factor, and exports are not that strong,” said Yayoi Sakanaka, senior economist at Mizuho Research & Technologies. “Semiconductors are picking up, but not yet in terms of volume.”

The currency impact may continue to sustain growth in exports in coming months, as the yen has extended losses. Japan's currency continues to trade around fresh 34-year lows, prompting objections from authorities.

Among industries leading the gains in March were the automakers and semiconductor and electronic parts sectors, which saw increases of 7.1% and 11.3%, respectively.

By region, China saw a 12.6% increase, accelerating from 2.5% in the previous month, as businesses ramped up operations following the lunar new year holidays, helping to power 5.3% economic growth in the January-March quarter. But shipments to the US and Europe rose at a slower pace of 8.5% and 3%, pointing to some patchiness in the overall export trend.

What Bloomberg Economics Says...

“A slightly weaker gain in Japan's outbound shipments in March doesn't derail a solid trend that is likely to bolster GDP in the first quarter via stronger net exports and, indirectly, capital investment.”— Taro Kimura, economist.

Japan's growth in shipments comes against the backdrop of a somewhat shaky environment for global commerce overall. Worldwide trade is advancing little by little, with the Goods Trade Barometer managed by the World Trade Organization reaching 100.6 last month. That's slightly above the trend baseline, indicating weak upward momentum, but various risks to the outlook persist.

“Merchandise trade should continue to recover gradually in the early months of 2024, but any gains could be easily derailed by regional conflicts and geopolitical tensions,” the global organization said last month.

Japanese exporters are monitoring demand prospects in their key overseas markets. Federal Reserve Chair Jerome Powell signaled Tuesday that policymakers will wait longer than previously anticipated to cut interest rates following a series of surprisingly high inflation readings.

The continued growth in shipments may help Japan record a modest economic expansion in the first quarter of 2024, offsetting the impact from stagnant domestic demand. Japan narrowly avoided a recession in the previous period, with anemic private consumption exerting a drag.

The world's fourth-largest economy is projected to record a small expansion again in the January-March quarter, according to a Bloomberg survey.

Source: Bloomberg

To stay updated on all economic events of today, please check out our Economic calendar

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Alex

Energy

U.S. propane inventories and prices are increasingly determined by the state of industrial demand in North East Asia and trade relations with China rather than weather and consumption at home.

Despite an exceptionally mild winter that depressed domestic consumption, exports depleted record stocks at the start of October to something much closer to normal by the end of March.

Propane and propylene inventories ended the winter on March 31 around 5 million barrels (+10% or +0.48 standard deviations) above the prior 10-year seasonal average.

The surplus was down from 13 million barrels (+15% or +1.18 standard deviations) at the start of winter on Oct. 1, according to weekly data published by the U.S. Energy Information Administration.

Inflation-adjusted spot prices have recovered to $35 per barrel so far in April 2024 from a recent low of $25 in June 2023.

Real prices at the Mont Belvieu trading hub are now close to the long-term average, in the 46th percentile for all months since 1990 up from just the 13th percentile in June 2023.

Excess inventories have been worked down even though the winter of 2023/24 was the warmest on record across North America.

Rescued By Exports

Domestic production or propane and propylene climbed to a record 926 million barrels in 2023 from 506 million ten years ago, a compound annual growth rate of 6%.

Most of the extra propane has been recovered from gas wells drilled to satisfy burgeoning demand from power generators and LNG exporters.

But the volume of propane and propylene supplied to domestic customers has slipped by an average of 2% per year and fell to just 386 million barrels in 2023, the lowest for 30 years.

Fortunately for domestic producers, weak consumption at home has been more than offset by the continued boom in exports, especially to destinations in East Asia.

Exports have increased at a compound rate of 18% per year in the last decade and reached a record 582 million barrels in 2023.

Last year saw the largest-ever annual increase of 72 million barrels, with most of the extra sent to Japan (+31 million), China (+26 million), South Korea (+8 million) and Taiwan (+4 million).

As a result of export-led growth, overseas sales accounted for 63% of all U.S. production in 2023 up from 22% a decade earlier.

The outlook for domestic prices and stocks has come to depend critically on the level of demand from North East Asia.

Source: Yahoo

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Thomas

Economic

Stocks

US Equity Markets: Fed Chair Powell in no Hurry

On Tuesday, Fed Chair Powell impacted market risk sentiment, saying the Fed could keep interest rates higher for longer. Powell stated the Fed needs to have confidence on inflation returning to target.

Weaker-than-expected US housing sector data failed to refuel investor bets on a June Fed rate cut. Housing starts tumbled 14.7% in March after surging 12.7% in February. Building permits fell by 4.3% after advancing by 2.3% in February. US industrial production increased by 0.4% after rising by 0.4% in February.

US Treasury yields responded to Fed Chair Powell. 10-year US Treasury yields rose 1.37%, ending the session at 4.669%.

On Tuesday, the Dow gained 0.17%. The Nasdaq Composite Index and the S&P 500 saw losses of 0.12% and 0.21%, respectively.

Asian Economic Calendar: Japan and Trade in Focus

On Wednesday, trade data from Japan warrants investor attention. Economists forecast the trade deficit to narrow from ¥379.4 billion to ¥280.0 billion in March. Moreover, investors should consider import and export trends to assess the global demand environment.

While the trade data will likely be the focal point, the Reuters Tankan Index numbers for April could also move the dial. Economists forecast the Index to decline from 10 to 9.

Both reports could influence the Bank of Japan rate path. An improving macroeconomic environment could raise investor bets on a BoJ move away from zero interest rates. A more hawkish rate path could drive buyer demand for the Japanese Yen and impact Nikkei-listed export stocks.

Commodities: Crude Oil, Gold, and Iron Ore

WTI crude and gold (XAU/USD) ended the Tuesday session with losses of 0.06% and 0.02%, respectively. Iron ore prices ended the session in negative territory, falling 1.28% on the Singapore Futures Exchange. The stats from China likely influenced iron ore price trends.

The USD/JPY, the Intervention Zone, and the Nikkei

The USD/JPY held onto the 154 handle, rising by 0.29% on Tuesday to close at 154.709. Yen weakness supports buyer demand for Nikkei-listed export stocks. However, geopolitical tensions and concerns about the Fed could overshadow the impact of a weaker USD/JPY.

The Futures Markets

On Wednesday, the ASX 200 was down 23 points, whereas the Nikkei was up 110 points.

ASX 200

The ASX 200 slid by 1.81% on Tuesday. Losses were broad-based, with banking, gold-related stocks, oil, mining, and tech stocks contributing. The S&P ASX All Technology Index (XTX) slid by 1.55%.

Bank and mining stocks led the losses.

ANZ Group Holdings Ltd. (ANZ) and Westpac Banking Corp. (WBC) fell by 2.21% and 2.33%, respectively. National Australia Bank Ltd. (NAB) and Commonwealth Bank of Australia (CBA) ended the session down 1.68% and 2.13%, respectively.

Rio Tinto Ltd. (RIO) and Fortescue Metals Group Ltd. (FMG) tumbled by 2.90% and 2.76%, respectively. BHP Group Ltd (BHP) declined by 1.75%.

Woodside Energy Group Ltd (WDS) and Santos Ltd (STO) ended the day down 1.25% and 1.52%, respectively.

Gold stocks Northern Star Resources Ltd. (NST) and Evolution Mining Ltd (EVN) saw losses of 0.59% and 1.53%, respectively.

Hang Seng Index

On Tuesday, the Hang Seng Index slid by 2.12%. Tech stocks and real estate stocks contributed to the losses. The Hang Seng Tech Index (HSTECH) tumbled 3.04%, with the Hang Seng Mainland Properties Index (HSMPI) falling by 1.18%.

Tencent (0700) and Alibaba (9988) saw losses of 0.95% and 2.77%, respectively.

Bank stocks also had a negative session. HSBC (0005) fell by 2.27%. China Construction Bank (0939) and Industrial Commercial Bank (1398) declined by 1.24% and 0.74%, respectively.

The Nikkei 225

Hang Seng Index, ASX 200, Nikkei 225: Futures Signal Volatility on Powell’s Remarks_3

The Nikkei declined by 1.94% on Tuesday.

Bank stocks extended their losses from Monday. Sumitomo Mitsui Financial Group Inc. (8316) and Mitsubishi UFJ Financial Group Inc. (8306) slid by 3.46% and 2.14%, respectively.

However, it was a mixed session for the main components of the Nikkei.

Tokyo Electron Ltd. (8035) and Softbank Group Corp. (9948) slid by 4.14% and 2.57%, respectively. Fast Retailing Co. Ltd. (9983) ended the session down 1.80%.

KDDI Corp. (9433) and Sony Group Corporation (6758) bucked the trend, advancing by 0.21% and 0.58%, respectively.

For upcoming economic events, refer to our economic calendar.

Source: FX Empire

To stay updated on all economic events of today, please check out our Economic calendar

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Samantha Luan

Economic

Forex

The USD/JPY pair trades with mild losses near 154.65 on Wednesday during the early Asian trading hours. The robust US economy and sticky inflation data have triggered the expectation that the Federal Reserve (Fed) might delay the easing cycle to September from June, which provides some support to the US Dollar (USD) against the Japanese Yen (JPY). However, the escalating tensions in the Middle East might boost safe-haven assets like JPY and cap the pair’s upside.

Data released by the US Census Bureau showed on Tuesday that US Housing Starts fell 14.7% in March from a 12.7% increase in February (revised from 10.7%). The Building Permits declined 4.3% from a 2.3% rise (revised from 1.9%) in the previous reading. Industrial Production came in line with market expectation, rising 0.4% MoM in March from the 0.4% increase in February.

Several Fed officials, including Chairman Jerome Powell, emphasized the data-dependent stance of policy and have not committed to beginning the interest rate cuts. Fed Chair Jerome Powell said the US central bank has not seen inflation come back to the 2% target, indicating that interest rate cuts are unlikely anytime soon.

On the other hand, the Bank of Japan (BoJ) is shifting to a more discretionary approach in setting policy, with less emphasis on inflation. This, in turn, continues to weigh on the JPY and create a tailwind for the USD/JPY pair. Investors will take more cues from the BOJ's fresh quarterly growth and price projections due at its April 25–26 policy meeting, for fresh impetus.

Meanwhile, the geopolitical tensions in the Middle East might lift the JPY and limit the upside of the USD/JPY pair. Late Tuesday, National Security Advisor Jake Sullivan said in a statement that new sanctions targeting Iran and sanctions against entities supporting the Islamic Revolutionary Guard Corps and Iran's Defense Ministry will be imposed in the coming days. Sullivan stated that the White House will not hesitate to continue to take action against the Iranian government. Tensions between Israel and Iran escalated after an attack on the Iranian embassy in Syria earlier this month, which killed two senior Iranian Revolutionary Guard Corps leaders. Iran blamed Israel for the attack, but Israel did not claim responsibility.

Source：FXStreet

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Samantha Luan

Economic

Forex

Estimates Suggest Further Disinflation

Both headline and core (excludes food, energy, tobacco and alcohol) measures have surprised to the downside in the previous two releases and are expected to demonstrate further evidence of disinflation tomorrow, forecast to rise +3.1% (from +3.4% in February) and increase +4.1% (from +4.5% in February) on a year-on-year basis, respectively.

This is quite the contrast to the US inflation picture, which has seen headline year-on-year inflation come in stronger than expected for four consecutive periods, with the core year-on-year measure unable to budge from a near-three-year low of 3.8%. Upper and lower-range estimates will also be closely observed heading into the release. For the headline report, the upper and lower limits are between 3.3% and 2.7%, while the core is between 4.6% and 3.8%.

UK CPI Inflation Data Ahead: Sterling Hovering North of Key Support_1

Between February and March, the median estimates also suggest cooling inflation. Headline inflation is forecast to rise +0.4% (from +0.6%), and core is expected to rise +0.5% (from +0.6%). Estimate extremes to be aware of for the headline release are between 0.6% and 0.1%, and for the core is seen between 0.7% and -0.4%. Services inflation will also be a key watch for investors and the Bank of England (BoE), which you may remember cooled to 6.1% in February, down from 6.5% in January.

UK CPI Inflation Data Ahead: Sterling Hovering North of Key Support_2

As you can see, economists already foresee deceleration across the board for all the key measures mentioned above. For that reason, a broad miss would need to be seen to trigger a meaningful push lower in sterling: a release that tests space around the lower range estimate extremes, for example. Should this come to fruition, another disinflationary print could also result in a dovish repricing for rates.

Two Rate Cuts This Year

The CPI measure is what the BoE use for their inflation targeting, which is currently fixed at 2.0% by the UK Government. In terms of the OIS curve, a total of -48bps is priced in for 2024 (essentially, two rate cuts); a notable hawkish shift was seen in recent weeks, triggered largely on the back of hotter US CPI inflation and commentary from BoE's Megan Greene communicating that ‘rate cuts in the UK should be way off'.

May's policy-setting meeting is unlikely to see the BoE cut rates, according to market pricing (10.0% probability currently forecasted for a -25bp rate cut [-3bps priced in]). June also looks unlikely, with -10bps of easing forecasted. As of writing, it's now a hit-or-miss between August and September's meetings for a -25bps cut. Of course, tomorrow's CPI inflation report could change things.

GBP/USD Support Still Calling for Attention

You may recall that the FP Markets Research Team released a week-ahead post on the technicals for the GBP/USD currency pair. The Team noted the following (italics):

Both monthly and daily charts exhibit scope to navigate lower levels; the daily chart shows support is not expected to enter the fray until $1.2331-$1.2366, which leaves H1 price action technically free to take aim at the $1.24 handle, at least. With that, short-term traders moderately sold into a pullback at $1.2462 on Friday [level since removed], which may be enough to trigger further underperformance this week towards $1.24. Though should a pop higher unfold, eyes will be on $1.2498-$1.2489 as a potential area of resistance.

As can be seen from the charts, H1 price responded well from the decision point area of $1.2498-$1.2489 already this week and voyaged within striking distance of $1.24.

Focus going into tomorrow's inflation print, therefore, will be on the daily support area between $1.2331-$1.2366, which, technically speaking, reveals room for a spike lower. This area consists of a handful of Fibonacci ratios, channel support (extended from the low of $1.2513) and ascending support (drawn from the low of $1.2037). A broad miss in the upcoming data could see the unit engulf bids around the $1.24 area, clear out any weak hands (sell stops located beneath the big figure) and perhaps recoil back to the upside from daily support.