AUD to USD Forecast: US Inflation, the Fed Dilemma, and Aussie Dollar’s Path

Economic

Forex

Summary:

On Wednesday, April 10, commodity price trends and China need consideration.However, the US CPI Report will be the headline report. Hotter-than-expected numbers will likely sink bets on a June Fed rate cut.

China: New Loans and Stimulus Hopes

On Wednesday, economic indicators from China could influence AUD/USD trends. New loan data from China will be in focus. A rebound in new loans could signal an improving demand environment. Investors expect the PBoC to continue implementing measures to bolster the Chinese economy. New loan figures for March could provide early indications of the effectiveness of PBoC measures.

Economists forecast new loans to increase from 1,450 billion Yuan to 3,700 billion Yuan in March.

Improving macroeconomic conditions in China could be a boon for the Australian economy and the Aussie dollar. China accounts for one-third of Australian exports, and Australia has a trade-to-GDP ratio above 50%. Moreover, 20% of the Australian workforce is in trade-related jobs.

Increased demand from China could influence Australian labor market conditions, consumer spending, and inflation.

While new loan figures warrant investor attention, investors should monitor stimulus chatter from Beijing. China set a growth target of 5% for 2024. Economists remain convinced that Beijing needs to roll out a fiscal stimulus package to achieve 5% growth.

Hopes for a stimulus package and improving US-China relations supported a rebound in iron ore prices. Iron ore futures are up 7.37% this week.

There are no economic indicators from Australia for investors to consider.

US Economic Calendar: US CPI Report and the Fed

On Wednesday, the all-important US CPI Report warrants investor attention. Economists forecast the US core annual inflation rate to ease from 3.8% to 3.7% in March. However, economists expect the annual inflation rate to accelerate from 3.2% to 3.4%.

Hotter-than-expected numbers could sink investor bets on a June Fed rate cut. Recent economic indicators raised expectations of the US avoiding an economic recession. The US Jobs Report signaled higher wages and consumer spending. Upward trends in consumer spending could fuel demand-driven inflation.

The Fed may delay interest rate cuts in response to a tighter US labor market and higher consumer prices. A higher-for-longer Fed rate path could impact borrowing costs, reduce disposable income, and curb spending.

With the US CPI Report in the spotlight, investors should monitor FOMC member chatter. Reactions to the US CPI Report and views on the timing of interest rate cuts could move the dial. FOMC member Austan Goolsbee is on the calendar to speak. The CPI Report will likely limit the influence of the FOMC Meeting Minutes, which are out later in the session.

Short-Term Forecast

Near-term AUD/USD trends will likely hinge on the US CPI Report and the Fed. Higher-than-expected consumer prices could impact investor bets on a June Fed rate cut. FOMC member calls to delay Fed interest rate cuts could tilt monetary policy divergence toward the US dollar.

AUD/USD Price Action

Daily Chart

AUD to USD Forecast: US Inflation, the Fed Dilemma, and Aussie Dollar’s Path_1

The AUD/USD remained above the 50-day and 200-day EMAs, affirming the bullish price signals.

An Aussie dollar break above the $0.66500 handle could give the bulls a run at the $0.67003 resistance level.

Economic indicators from China, the US CPI Report, and Fed chatter need consideration.

Conversely, an AUD/USD drop below the $0.66 handle would bring the 200-day EMA and $0.65760 support level into play. A break below the $0.65760 support level could signal a fall to the 50-day EMA.

Given a 14-period Daily RSI reading of 61.36, the AUD/USD may return to the $0.67003 resistance level before entering overbought territory.

Source: FX Empire

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Daily News

[Quick Facts]

1. Kazuo Ueda: Maintain loose monetary policy and consolidate the virtuous wage-price spiral.

2. Bostic reiterates his expectation for one rate cut this year.

3. Canada's fiscal policy remains an uncertainty for rate cut forecasts.

4. The BOJ will consider raising inflation forecasts this month.

[News Details]

Kazuo Ueda: Maintain loose monetary policy and consolidate the virtuous wage-price spiral

Bank of Japan (BOJ) Governor Kazuo Ueda said this morning that Japan's economy has recovered moderately, supported by by factors such as the materialization of pent-up demand, but the economy is likely to face downward pressure due to the slower pace of recovery in overseas economies.

At the monetary policy meeting held last month, we judged that the 2% price target would be achieved in a sustainable and stable manner, which is predictable as data and information from companies gradually indicate that the virtuous wage-price spiral has been consolidated.

In the future, the Bank of Japan will implement monetary policy, as appropriate, in accordance with developments in economic activity, prices, and financial conditions, aiming to achieve its objectives sustainably and stably. It will utilize short-term interest rates as its main policy tool. Given the current outlook for economic activity and prices, accommodative financial conditions are expected to be maintained for the time being.

Bostic reiterates his expectation for one rate cut this year

St. Louis Fed President Raphael Bostic yesterday reiterated his expectation for one rate cut this year. He added that he is willing to change his view if the economic situation changes. Postponing rate cuts or making further rate cuts are both possible.

If there are signs of a weaker job market, earlier and more cuts would be considered (Bostic had previously said he expected a single rate cut this year, coming in the fourth quarter).

I do think the risks are balanced. Given that the U.S. economy has been so robust and so resilient, I can't take off the possibility that rate cuts may even have to move further out (i.e. there may not be a rate cut this year). If I started to get different signals to suggest that there's a lot of coming pain in the labor market side, then I'd be open to changing our policy stance and perhaps cutting rates sooner.

Canada's fiscal policy remains an uncertainty in rate cut forecasts

S&P Global Ratings lowered its ratings on the Province of British Columbia on Monday, in part due to the province's capital spending program and projected large deficit.

As it stands, stronger-than-expected spending by the Canadian government could hamper its efforts to bring inflation down to 2%, thus delaying a rate cut in Canada. Canada's Finance Minister Chrystia Freeland, who will unveil her budget next week, preemptively revealed the C$25 billion spending program.

Based on the spending plans of Canada's four largest provinces alone, the Canadian government's spending will be about double the Bank of Canada's previous forecast.

The BOJ will consider raising inflation forecasts this month

The Bank of Japan may consider raising its inflation forecast at its policy meeting later this month after a surprisingly strong result in annual pay talks, people familiar with the matter said.

In its first forecast for FY2024, the BOJ may discuss raising its CPI forecast excluding fresh food (currently at 2.4%).

In addition, the BOJ may raise its headline CPI forecast for FY2026 to about 2% and may also consider raising its inflation forecast for FY2024 excluding energy prices to 2% or higher.

Officials cited higher labor costs due to rising salaries as one of the factors driving future price increases. Despite the upward revision, officials said they also need to be wary of possible downside risks to inflation when making their projections for FY2026.

[Focus of the Day]

UTC+8 14:00 Bank of Japan Governor Kazuo Ueda Speaks

UTC+8 20:30 U.S. CPI (Mar)

UTC+8 21:45 Bank of Canada Interest Rate Decision (Apr)

UTC+8 23:00 Bank of Canada Governor Macklem Holds Monetary Policy Press Conference

UTC+8 02:00 Next Day: Minutes of the Fed's March Monetary Policy Meeting

Risk Warnings and Disclaimers

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Glendon

Economic

Alphabet Inc., the tech giant behind Google, has strategically employed stock splits as a tool to maintain investor interest and ensure its shares remain affordable to a broad spectrum of investors. The company's notable 20-for-1 stock split in 2022, following an earlier 2-for-1 split in 2014, underscores its proactive approach to managing share accessibility and market capitalization.

Understanding the Strategy Behind Stock Splits

A stock split is a financial maneuver used by companies to increase the number of their outstanding shares, thereby reducing the price per share. This action does not affect the company's overall market value but makes the stock more accessible to retail investors. Essentially, it's like slicing a pie into more pieces—the size of the pie doesn't change, but more people can have a piece.

For example, if a stock is priced at $1,000 with a total market capitalization of $100,000,000, a 5-for-1 stock split results in each shareholder owning five times the number of shares, with each share now priced at around $200. This maintains the total investment value but lowers the entry cost for new investors.

Google's Stock Split History: A Closer Look

2014 Split: This unique approach not only doubled the number of shares but also introduced a new class of non-voting stock (GOOG), diversifying the types of shares available without diluting existing shareholders' voting power.

2022 Split: The 20-for-1 split significantly increased the total number of shares, drastically reducing the share price from $2,255.34 to $112.64. This move was aimed at making the stock even more accessible, following a steep rise in Alphabet's share price due to the company's robust growth.

Market Response and Alphabet's Stock Performance

Following the 2022 split, Alphabet's Class A shares initially surged by over 7.5%, reflecting positive investor sentiment. However, later in the year, shares dipped due to macroeconomic factors, though they recovered to show a 19% gain year-to-date by April 2023. This volatility highlights the external factors influencing stock prices beyond company-specific actions.

Financial Insights and Alphabet's Strategic Focus

In 2022, Alphabet reported a 10% increase in revenue to $283 billion, despite a decrease in operating income and diluted EPS. The company also made significant cuts to its workforce in January 2023, aligning with its strategic realignment towards optimizing operational efficiencies.

Alphabet continues to heavily invest in key growth areas like artificial intelligence and cloud computing. These investments are intended to bolster future growth and maintain Alphabet's competitive edge in the tech sector.

Comparative Analysis: Stock Splits Across the Tech Industry

Stock splits are a common strategy among tech giants:

Apple: Has split its stock five times to maintain its marketability and share accessibility.

Amazon: Similar to Alphabet, Amazon implemented a 20:1 split in 2022, indicating a trend among large tech companies to keep their shares within reach of retail investors.

Netflix and Tesla: Both companies have utilized stock splits as a means to manage their rapidly increasing share prices and attract a broader investor base.

Conclusion

Alphabet’s strategic use of stock splits highlights a deliberate effort to keep its shares accessible and attractive to investors, ensuring broad participation in its growth trajectory. This approach not only supports retail investment but also stabilizes Alphabet's presence in the volatile tech market, encouraging long-term investment and shareholder loyalty. Through these financial strategies, Alphabet effectively balances shareholder interests with its ambitious expansion and innovation goals, securing its position as a dominant force in the global tech landscape.

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Owen Li

Economic

Forex

The main market focus on Wednesday is U.S. consumer price inflation for March, which traders have been eagerly awaiting for hints on the Fed's policy outlook.

The inflation data follows a strong jobs report last Friday that blew past forecasts, stirring more questions on how soon and how much the central bank will cut rates this year.

Futures traders reduced bets to the lowest level since October, around 60 basis points in rate cuts this year, LSEG data showed on Monday, amid evidence of continued strength in the U.S. economy.

Ahead of the data, U.S. interest rate futures set the odds of the first cut occurring in June at about 60%, up from 51% on Monday, according to CME Group's FedWatch tool, although the possibility of a hold has bumped up to 40%.

A solid CPI number will likely have markets pricing out a June cut, which could see the dollar rising sharply, said Carol Kong, a currency strategist at Commonwealth Bank of Australia.

"A strong core CPI of 0.3% (month-to-month) or above will likely break the case for a June rate cut because there are two more CPI readings ahead of the meeting which are likely not sufficient to show a pattern of slowing inflation."

On the other hand, even if the data comes in below expectations, June bets will probably remain little changed as hurdles remain, meaning the dollar may only dip modestly, she said.

"The U.S. CPI will be a big test for Japanese authorities," Kong added.

The U.S. dollar index, which measures the greenback against six rivals, held firm at 104.10.

The yen remained close to its 34-year low versus the dollar ahead of the data, after it received some support as the Bank of Japan Governor Kazuo Ueda on Tuesday signalled the chance of another interest rate hike later this year in line with market bets.

The Japanese currency strengthened 0.06% to 151.70 per dollar as the BOJ chief spoke again in the Asian morning.

Elsewhere, the euro was steady at $1.085575, as the European Central Bank meeting on Thursday fast approaches. The ECB is expected to hold rates this week, although traders betting the central bank will start cutting in June will be looking for signals from policymakers.

Sterling was mostly flat at $1.26760.

Ahead of the U.S. CPI, the Reserve Bank of New Zealand is expected to leave rates at 5.5% at its monetary policy meeting on Wednesday. Focus will be on the tone of the RBNZ's statement for clues on the outlook.

The kiwi rose 0.07% versus the greenback to $0.60655.

The Australian dollar ticked up 0.05% to $0.6630.

Source: Reuters

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Samantha Luan

Economic

Central Bank

The Reserve Bank of New Zealand (RBNZ) is widely expected to maintain the Official Cash Rate (OCR) at 5.50% for the sixth consecutive meeting in a row following the conclusion of its monetary policy meeting on Wednesday.

The New Zealand Dollar (NZD) is primed for a big market reaction to the RBNZ policy announcements despite the absence of RBNZ Governor Adrian Orr’s press conference and the publication of updated economic projections.

What to expect from the RBNZ interest rate decision?

As a rates on-hold decision is fully priced in, markets will closely scrutinize the language and the tone in the Reserve Bank of New Zealand’s Monetary Policy Statement (MPS).

After extending the pause in February, the RBNZ policy statement stated, “conditional on our central economic outlook, we expect the OCR will need to remain around current levels for an extended period for the Monetary Policy Committee to meet its inflation target.”

Speaking at the post-policy meeting press conference, Reserve Bank of New Zealand’s (RBNZ) Governor Adrian Orr noted that “we did discuss a hike in rates”, adding that there was a “strong consensus that rates were sufficient.”

Orr said that he is “still concerned about underlying inflation, how grown inflation is easing.”

Since the February meeting, little data of note has been released from New Zealand to help gauge the timing of the RBNZ’s likely policy pivot. However, with New Zealand’s economy facing its second recession in 18 months and consumer confidence dipping sharply, markets may not be surprised by a dovish hold.

New Zealand’s Gross Domestic Product (GDP) growth contracted 0.1% in the fourth quarter of 2023, following a 0.3% contraction in the third quarter. Meanwhile, ANZ-Roy Morgan New Zealand Consumer Confidence fell by 8.1 points in March to 86.4.

Markets are currently pricing in the first RBNZ’s rate cut in August, with a 75 bps of total easing this year, per BBH Analysts.

On the other hand, the RBNZ could stick to its language from the February MPS, awaiting the first-quarter Consumer Price Index (CPI) report and the labor market data before contemplating any change in its policy outlook.

Data published by Stats NZ showed that New Zealand’s annual Consumer Price Index (CPI) increased by 4.7% for the December quarter, the smallest annual rise in more than two years. However, the figure still remains much above the RBNZ target of 1.0%-3.0%.

Previewing the RBNZ policy announcement, analysts at TD Securities noted: “The RBNZ is expected to keep the OCR on hold at 5.50%. Limited data flow since the February MPS suggests the Bank delivers a similarly worded Statement again.”

“GDP released a week after the February MPS missed the Bank's forecast by a whisker but higher oil prices, weaker NZD, monthly survey releases with price and employment data suggest the inflation outlook still looks challenging,” the analysts added.

How will the RBNZ interest decision impact the New Zealand Dollar?

Risks appear skewed to the downside for the NZD/USD pair heading into the RBNZ showdown on Wednesday, as the US Dollar keeps the upper hand across the board following robust Nonfarm Payrolls data that prompted investors to dial down expectations for a June US Federal Reserve (Fed) rate cut.

Furthermore, expectations of an RBNZ status quo also leave the Kiwi Dollar in the back seat, with a fresh sell-off likely on the cards should the RBNZ policy statement hint toward an earlier-than-expected rate cut.

Conversely, if the MPS suggests that the RBNZ could stick to its “higher for longer” interest rate view amid elevated inflation level, the NZD/USD pair could regain the recovery momentum from five-month lows of 0.5939.

Dhwani Mehta, FXStreet’s Senior Analyst, offers a brief technical outlook for trading the New Zealand Dollar on the RBNZ policy announcements: “The NZD/USD pair is challenging the critical 21-day Simple Moving Average (SMA) at 0.6036 on its road to recovery. The 14-day Relative Strength Index (RSI) indicator, however, is still holding below the 50 level, suggesting that sellers are likely to hold the reins.”

“The immediate upside hurdle is seen at the horizontal 200-day SMA at 0.6068, above which the 0.6100 round level will come into play. NZD buyers will then target the 100-day SMA at 0.6138. Conversely, a sustained move below the 0.6000 level could open doors for a test of the April 5 low at 0.5985. Further south, the five-month kow of 0.5939 could be a tough nut to crack for NZD/USD sellers,” Dhwani adds.

Source：FXStreet

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Thomas

Economic

Commodity

Stocks

US Equity Markets: US RCM/TIPP Economic Optimism Index

Investors should consider overnight US equity market moves early in the Wednesday session. US economic indicators had a limited impact on US investor sentiment. The focus remained on the US CPI Report and the earnings season.

The RCM/TIPP Economic Optimism Index declined from 43.5 to 43.2 in April. Economists forecast an increase to 44.2. The Index is a leading indicator of consumer confidence and spending.

10-year US Treasury yields fell by 1.27%, ending the Tuesday session at 4.366%. On Tuesday, the Dow slipped by 0.02%. The Nasdaq Composite Index and the S&P 500 advanced by 0.32% and 0.14%, respectively.

Asian Economic Calendar: Inflation Numbers from Japan and the BoJ in Focus

On Wednesday, producer price numbers from Japan warrant investor attention early in the session. An upward trend in producer prices could raise expectations of a BoJ move away from negative rates. Producer prices raise prices in a higher-demand environment, passing costs onto consumers.

Economists forecast producer prices to increase by 0.8% year-on-year in March after rising by 0.6% in February. Higher-than-expected numbers could drive demand for the Yen and impact Nikkei-listed export stocks.

With inflation in the spotlight, investors should consider Bank of Japan commentary. BoJ Governor Kazuo Ueda is on the calendar to speak. Views on the economic outlook, inflation, and interest rates could move the dial.

Commodities: Crude Oil, Gold, and Iron Ore Price Trends

Commodity price movements also need investor consideration. Central bank purchases of gold, the Middle East influence on Crude oil, and iron ore demand from China are common themes.

On Tuesday, crude oil ended the session in negative territory, while gold hit new highs. Iron ore prices continued to recover on Tuesday. Reasons for the upswing in iron ore prices could include hopes of a rebound in demand from China and improving US-China relations.

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

The USD/JPY hovered within the intervention zone at 151.757 on Wednesday. The markets expect 152 to be the line in the sand for the Japanese government. Government threats to intervene could affect the USD/JPY and Nikkei-listed export stocks.

The Futures Markets

On Wednesday, the ASX 200 was up 24 points, while the Nikkei was down by 100 points.

ASX 200

The ASX 200 gained 0.45% on Tuesday. Bank, gold (XAU/USD), mining, and tech stocks ended the session in positive territory. The S&P ASX All Technology Index (XTX) advanced by 0.56% on a pullback in US 10-year Treasury yields.

Gold stocks Northern Star Resources Ltd. (NST) and Evolution Mining Ltd (EVN) rose by 0.40% and 0.77%, respectively. Gold spot climbed higher on Monday.

Rio Tinto Ltd. (RIO) and BHP Group Ltd (BHP) rallied 2.96% and 1.99%, respectively, as iron ore prices rebounded. Fortescue Metals Group Ltd. (FMG) gained 1.61%.

Commonwealth Bank of Australia (CBA) and Westpac Banking Corp. (WBC) saw gains of 0.81% and 1.15%, respectively. ANZ Group Holdings Ltd. (ANZ) and National Australia Bank Ltd. (NAB) ended the day up 0.65% and 0.52%, respectively.

However, Woodside Energy Group Ltd (WDS) advanced by 0.47%, while Santos Ltd (STO) slid by 2.04%.

Hang Seng Index

On Tuesday, the Hang Seng Index ended the session up 0.57%. Tech stocks and property stocks reversed the losses from Monday. The Hang Seng Tech Index (HSTECH) and Hang Seng Mainland Properties Index (HSMPI) advanced by 0.44% and 0.98%, respectively.

Tencent (0700) declined by 0.13%, while Alibaba (9988) gained 0.14%.

Bank stocks had a mixed session. HSBC (0005) rallied 1.11%, with China Construction Bank (0939) gaining 0.62%. Industrial Commercial Bank (1398) ended the session flat.

The Nikkei 225

Hang Seng Index, ASX 200, Nikkei Index: Inflation, the BoJ, and Interventions_3

The Nikkei ended Tuesday up 1.08%. USD/JPY trends influenced buyer appetite for Nikkei-listed export stocks.

Bank stocks had a mixed Tuesday session. Sumitomo Mitsui Financial Group Inc. (8316) advanced by 0.52%, while Mitsubishi UFJ Financial Group Inc. (8306) ended the session flat.

It was also a mixed session for the main components of the Nikkei.

Tokyo Electron Ltd. (8035) rallied 3.53%, with Sony Group Corporation (6758) gaining 0.63%.

KDDI Corp. (9433) and Fast Retailing Co. Ltd. (9983) ended the day up 0.43% and 0.02%, respectively. Softbank Group Corp. (9948) bucked the trend, falling 0.29%.

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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Economic

Investors add to June rate cut bets after BoE decision

With inflation in the UK coming down faster than previously expected, the Bank of England (BoE) appeared more dovish than expected at its latest gathering, on March 21. Once again, officials kept interest rates unchanged, but this time, there were no members voting for a hike. There was only one dissenting vote, and that was for a 25bps reduction.

On top of that, Governor Bailey reiterated that they are not yet at the point where they can cut interest rates, but he added that with inflation coming down, things are moving in the right direction.

This has led market participants to bring forward their BoE rate cut bets, with the overnight index swaps (OIS) market suggesting a 25% probability for a quarter point reduction at the Bank’s upcoming gathering in May, and chance for a cut in June rising to around 70%. The quick repricing has been weighing on the pound, with Cable tumbling from 1.2800 to near the 1.2600 area. Will Friday’s Data Add To Hopes Of UK Exit From Recession?_1

Will Friday’s Data Add To Hopes Of UK Exit From Recession?_1

Did the UK economy exit recession in Q1?

For pound traders, this week may not be as busy as for dollar and euro traders, but they will still have the opportunity to reassess their view with regards to the BoE’s future course of action on Friday when the monthly GDP estimate for February is coming out, alongside the industrial and manufacturing production figures for the month.

Given that the UK economy slipped into recession in the second half of 2024, market participants may be eager to find out whether it entered growth mode again during the first quarter of the new year. The monthly GDP rate for January clocked in at 0.2% m/m, while the composite PMIs for both January and February pointed to improvement, although the March print pointed to a mild slowdown. Will Friday’s Data Add To Hopes Of UK Exit From Recession?_2

Will Friday’s Data Add To Hopes Of UK Exit From Recession?_2

The aforementioned numbers suggest that the UK economy started the new year on a stronger footing, but that remains to be confirmed by Friday’s numbers. The forecast points to a slowdown to 0.1% m/m, which could revive some concerns regarding the performance of the UK economy, despite not entering contraction territory.

The NIESR GDP tracker points to a 0.3% q/q for the first quarter of 2024, but a soft monthly rate for February could bring that forecast into question, especially after the March PMIs pointed to a slowdown in business activity during the last month of the quarter.

Too early for conclusions as CPI data loom next week

Therefore, investors may remain convinced that there is a strong chance for the BoE to begin cutting interest rates in June, which could weigh somewhat on the pound. However, calling for a bearish outlook may still be premature, especially ahead of next week’s CPI data for March.

Despite the slowdown, the March PMIs also revealed that output prices across the UK private sector rose at the fastest pace in eight months, which tilts the risks surrounding next week’s inflation data to the upside. Therefore, even if the pound slips somewhat this week, it could bounce back up next week. Will Friday’s Data Add To Hopes Of UK Exit From Recession?_3