The Australian dollar traded half a percent higher during the EU session on Tuesday as sentiment improved notably following the Easter holiday.
Australian macro data sparked optimism
In April, Australia’s Westpac Consumer Confidence surged to its greatest level since June 2022, registering 9.4% versus 0.8% expected and 0.0% previously. In addition, the National Australia Bank’s (NAB) Business Conditions matched expectations at 16.0, compared to 17.0 previously, while NAB Business Confidence decreased to -1.0, compared to 0.0% expected and -4.0 previously.
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In addition to generally positive Aussie data, Reuters headlines indicating an end to the trade dispute between Australia and China over barley exports also supported the AUD/USD exchange rate.
In contrast, China’s headline inflation figures for March, namely the Consumer Price Index (CPI) and Producer Price Index (PPI), came in at 0.7% YoY and -2.5% YoY compared to 1.0% and -1.5% YoY, respectively, in the previous month.
Fed expected to deliver a final rate hike
Friday’s official jobs report, released on Friday, bolstered the dollar as it revealed a robust labor market, with nonfarm payrolls increasing by 236,000 jobs last month and the unemployment rate falling to 3.5%.
This momentum suggests that the Fed has the capacity to continue raising interest rates when its policymakers next meet in May, in contrast to the weaker data released earlier in the week, which indicated that the number of job openings in the United States fell to its lowest level in nearly two years in February.
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The Fed’s likelihood of increasing interest rates by another quarter point in May has increased to 70% from 50% last week.
US inflation updates
The Consumer Price Index (CPI) for March will be released on Wednesday by the Labor Department. Compared to the 0.4% increase in February, prices are projected to have increased by 0.3% in March. Markets also expect a 5% year-over-year inflation print, a slowdown from the previous month’s 6% increase.
The annual rate of core inflation, which excludes volatile food and energy prices, is anticipated to rise to 5.6% from 5.5% in February. As a result of the Federal Reserve’s decision to raise interest rates, headline inflation, as measured by the CPI, has substantially slowed since reaching a 40-year high of 9.1% in June of last year. However, it remains significantly above the central bank’s target range.
Moreover, the March Producer Price Index (PPI) will be released by the Bureau of Labor Statistics (BLS) on Thursday. The PPI measures inflation from the perspective of manufacturers and wholesalers. After declining 0.1% in February, producer prices were presumably unchanged in March. However, they are projected to have risen just 3.1% annually, down from 4.6% the month prior. This would be the lowest annual growth rate in over two years.
AUD/USD daily chart, source: author´s analysis, tradingview.com