Where now for the AUD?
Last night's inflation figures in Australia put a fresh dent in the AUD and underpinned forecasts for an RBA rate cut later this year - perhaps as early as next month according to rates market pricing. Headline inflation for Q1 was bad enough, coming in at just 1.3%, down from the Q4 reading of 1.8%, but we also saw the weighted mean and trimmed measures falling and these metrics are closely watched by the central bank.
Recent improvements in Chinese data have done little to improve the outlook for the AUD, despite the implications, this will have on demand raw materials from Australia. Current sentiment is all based around the interest rate outlook and traders do not want to miss out on any widening in rate differentials with the US, where the Fed is in a neutral stance despite the futures markets pricing in odds of a cut later this year.
Technically, AUD/USD has a key level at 0.7000 with plenty of 2 way business conducted at this level. Should we make a clean break below here, then it is hard to ignore the fact that we may well retest the lows seen in the flash crash at the start of the year when the spot rate hit lows a tad under 0.6750. On the upside, 0.7200 looks to be a firm line in the sand, and this despite improved stats out of China and a positive risk mood in equity markets.