The Australian dollar is trading at 0.6672 in Europe, up 0.39%. Australian retail sales posted a weak gain of 0.2% and the quarterly CPI release is next. The banking crisis has eased a bit and risk currencies like the Aussie are in positive territory today.
RBA keeping eye on retail sales and inflation ahead of rate meeting
The markets were braced for a sharp deceleration in retail sales for February, but the meagre 0.2% gain missed the estimate of 0.4% and follows a strong gain of a revised 1.8% in January. Consumers are holding tighter to their wallets as the double whammy of rising interest rates and high inflation has dampened consumer spending.
RBA Governor Lowe said that this week’s retail sales and inflation release will be key factors in the rate decision on April 4th. The strong drop in retail sales supports the case for the Reserve Bank of Australia to take a pause. As for inflation, it is expected to drop to 7.1% in February, down from 7.4% in February. If the release is higher than the forecast, the RBA will be under pressure to raise rates at next week’s meeting. Another factor that Lowe will have to consider is the banking crisis, as central banks will need to think twice before raising rates since it puts further stress on the banking system. The markets have priced in a pause at 86%, with the likelihood of a 25 bp increase of only 13%.
The Federal Reserve announces its rate decision on Wednesday and the fact that the meeting is a live one will add to the drama. Market pricing has swung wildly, as only a few weeks ago the markets expected a 50 bp hike. Throw in a nasty bank crisis, and currently, the markets are split between a 25 bp increase and a pause. In December, the Fed’s Summary of Economic Projections (SEP) which includes forecasts for interest rates and inflation. There has been a lot of market turbulence since then, and any revisions in the SEP could affect the movement of the US dollar.
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AUD/USD Technical
- AUD/USD is testing resistance at 0.6676. Above, there is resistance at 0.6728.
- There is support at 0.6565 and 0.6402
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- Source: https://www.marketpulse.com/20230328/aud-usd-aussie-rises-as-risk-appetite-improves-cpi-next/kfisher
