Australian Dollar Talking Points
AUD/USD[1] appears to be making another attempt to test the March high (0.7849) ahead of the update to Australia’s Consumer Price Index (CPI), and the exchange rate may stay on track to negate the head-and-shoulders formation from earlier this year after failing to close below the neckline.
AUD/USD Still on Track to Negate H&S Formation Ahead of Australia CPI
AUD[2]/USD[3] has come up against the monthly high (0.7816) on the back of US Dollar[4] weakness, and fresh data prints coming out of Australia may keep the exchange rate afloat as the headline reading for inflation is projected to increase for the third consecutive quarter.
Australia’s CPI is expected to widen to 1.4% from 0.9% during the last three-months of 2020 to mark the highest reading since the onset of COVID-19, and the development may put pressure on the Reserve Bank of Australia (RBA) to gradually adjust the forward guidance for monetary policy as the economy returns to pre-pandemic conditions.
Looking ahead, the RBA may have limited scope to further utilize its non-standard tools as “the Bank was projected to own 30 per cent of the AGS (Australian Government Securities) market and 15 per cent of the semis (bonds issued by the states and territories) market” after completing the second round its quantitative easing (QE) program in September, but the minutes from the March meeting suggest the central bank is in no rush to scale back its emergency measures as “annual CPI inflation was expected to rise temporarily to around 3 per cent around the middle of the year as a result of the reversal of some pandemic-related price reductions.”
In turn, the RBA appears to be on track to retain the current course for monetary
