It’s been a very quiet day in Asia, which isn’t surprising given the lack of headline data releases and the short trading week in parts of the region. In saying that, AUDUSD has been one of the biggest movers in the Asia session thus far, with the pair smashing through yesterday’s high and triggering some orders around 0.9350.
Inflation is expected to near the top of the RBA's target range
The biggest test for the Australian dollar this week will come from tomorrow’s inflation figures. The market is expecting to see a significant spike in inflation during last quarter. In fact, current estimates suggest that a 0.8% q/q rise in consumer prices in Q1 will see headline inflation jump to 3.2% y/y, from 2.7% in the prior quarter. Furthermore, core inflation is expected to rise to 2.9% y/y, which is at the top of the RBA’s 2-3% target range. This could complicate the RBA’s wait-and-see strategy, as it would likely place inflation near the top of the RBA’s target range for most of the year.
The market may have doubts about the ability of the RBA to maintain historically low interest rates if consumer prices rose 0.8%, or even more for that matter, last quarter. This could help support the Australian dollar going forward, even if the RBA attempts to talk it down again. Although, the RBA may have no choice but to accept the Aussie’s recent strength, especially if inflation is as strong as the market seems to think it is.
AUDUSD
However, given that the market has such high expectations for inflation, a lower than expected CPI number may hit the Aussie hard. On the other hand, a very strong number could see AUDUSD rocket higher as it would certainly eliminate most of the lingering calls in the market for lower interest rates. AUDUSD is currently nearing a resistance zone around 0.9390. A break there could see the pair make a run for another resistance zone around 0.9455/60.
Source: FOREX.com
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