The Australian dollar traded half a percent lower during the London session on Wednesday as the recent uptick in the Aussie might be over soon.
Bleak Australian macro update
In February, Australia’s Monthly Consumer Price Index decreased to 6.8% YoY, compared to 7.1% predicted and 7.4% before.
Following the most recent decline in inflation readings, the likelihood of another 0.25 basis point (bps) rate rise from the Reserve Bank of Australia (RBA) appears unfavorable. As a result, It sinks the AUD/USD exchange rate, especially after the disappointing Australian Retail Sales.
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Earlier in the week, February’s seasonally adjusted Retail Sales increase in Australia came in at 0.2%, compared to 0.4% market expectations and 1.8% before. Retail Sales, the primary indicator of Australian consumer spending, are provided by the Australian Bureau of Statistics (ABS) about 35 days following the end of the month. It accounts for around 80% of the country’s total retail sales and substantially affects prices and GDP.
Furthermore, Reuters reported on Tuesday that an official in the treasurer’s office stated that Australian Treasurer Jim Chalmers would host a meeting of the country’s top financial regulators to examine how the recent volatility in global financial markets may affect Australia.
Contradicting Chinese signals
Firstly, the Deputy Director General of the National Development and Reform Commission of the People’s Republic of China (NDRC) stated on Wednesday, “We are optimistic about this year’s development prospects. China’s potential growth rate is identical to the potential growth rate of the entire globe,” he continued.
On the other hand, China’s Taiwan Relations Office vowed action in response to Taiwan’s president’s travel to the United States on Wednesday.
At a news conference, Zhu Fenglian, spokesperson for China’s Taiwan Affairs Office, stated, “If she contacts US House Speaker McCarthy, it will be another provocation that seriously violates the one-China principle, harms China’s sovereignty and territorial integrity, and destroys peace and stability in the Taiwan Strait. We vehemently condemn this and will undoubtedly take retaliatory steps.”
Is the US banking crisis over?
Officials on both sides of the Atlantic are eager to reassure the markets of the industry’s underlying resilience as optimism grows that the uncertainty engulfing the global financial system may be ending soon.
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Michael Barr, vice chairman for supervision at the Federal Reserve, told the Senate Banking Committee on Tuesday that the US financial system is “sound and resilient.”
However, President of the Federal Reserve Bank of Minneapolis and one of the FOMC’s most hawkish members, Neel Kashkari, cautioned earlier this week of the economic consequences of a credit crisis, stating that recent bank instability has raised the likelihood of a US recession.
“Since the Fed is not offering a hawkish narrative to lean on, market pricing of future rate moves remains strictly tied to news on financial stability,” analysts at ING said in a note.
The short-term uptrend line is near 0.6645, and if not held, the Aussie could decline toward the swing lows at around 0.6580. On the upside, the resistance seems near last week’s top at about 0.6730/40.
AUD/USD daily chart, source: author´s analysis, tradingview.com