The Australian dollar declined on Wednesday as the recent optimism faded, benefitting the US dollar.
US inflation update
Later today, the Producer Price Index (PPI) will be released, which measures inflation from the perspective of manufacturers and wholesalers. After a larger-than-anticipated 0.7% increase in January, producer prices are forecast to rise 0.3% last month. As a result, they were likely up 5.7% annually, decelerating from a 6% growth in January and opposed to a 40-year peak of 11.7% reached in March last year.
As projected, the US Bureau of Labor Statistics reported Tuesday that the annual Consumer Price Index (CPI) decreased to 6% in February from 6.4%. Importantly, the Core CPI increased by 0.5% monthly in February, following a 0.4% increase in January. This number was higher than the market’s 0.4% forecast.
In response, US yields increased sharply, helping the USD to advance higher. According to the CME Group FedWatch Tool, the likelihood of a 25 basis point rate rise at the forthcoming meeting is now priced in at 82%.
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Additionally, on Wednesday, the US Census Bureau will issue retail sales data for February, indicating the stability of consumer spending last month. Inflation-unadjusted retail sales likely rose 0.2% in February, following a 3.0% increase in January. Because of substantial nominal pay rises, a tight labor market, and extra savings from earlier in the recession that has buffered people’s purchasing power, consumer spending has been resilient despite a weakening economy.
Chinese data failed to impress
Meanwhile, China’s January-February retail sales were up 3.5% compared to 3.5% projected and -1.8% previously, while the nation’s industrial output increased 2.4% compared to 2.7% expected and 1.8% previously. Moreover, fixed asset investments grew by 5.5% YTD in January-February compared to the 4.5% projected and 5.1% previous.
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After releasing China’s major economic figures, the country’s National Bureau of Statistics (NBS) issued a statement via Reuters detailing their economic prognosis, saying that economic operations show stabilizing and recovery. Still, the foundation of economic recovery has yet to be solid.
Moreover, China’s economy still faces many difficulties this year, including global risks, but the 2023 growth target of around 5% is in line with economic reality.
Thursday’s Employment report is anticipated to influence the Australian Dollar. According to the consensus, the Australian economy created 48,5K new employment in February, compared to the 11.5K jobs lost in January. In addition, the unemployment rate is anticipated to decrease to 3.6% from the previous 3.7%.
As mentioned, the Aussie has failed to breach the resistance of previous lows near 0.67. As long as it trades below that level, the medium-term downtrend remains intact. However, should the pair jump above that level, we might see another rally toward the 200-day moving average (the blue line) near 0.6770.
AUD/USD daily chart, source: author´s analysis, tradingview.com