The Australian dollar was steady in the Monday session. In European trade, AUD/USD was trading at 0.7722, up 0.14%.
The US dollar showed some broad strength on Friday, and AUD/USD fell 0.70%, briefly falling below the 0.77 level. The greenback was supported by inflows from international investors who snapped up US Treasuries in month-end rebalancing flows.
Strong US numbers on Friday also gave the US dollar a boost. The Core PCE Price Index , which is considered the Federal Reserve’s preferred inflation gauge, rose to 0.4% in March, up from 0.1% beforehand. This is another indication of inflationary pressures, as the US economy continues to sprint at a fast pace.
The Fed has stated more than once that any spike in inflation will be temporary, but it’s not at all clear that the market has bought into this stance. If inflation numbers continue to rise in the coming months, the Fed may have to acknowledge that higher inflation levels are not a passing event.
On Friday, Fed Governor Robert Kaplan, who is not a voting member, said straight out the Fed needs to be talking about tapering its asset-purchase program. The Fed has insisted that it needs to keep its foot to the pedal as the economy continues to recover, but there’s a good chance that other Fed members agree with Kaplan.
The US economy has been reeling off impressive numbers, and the April nonfarm payroll report is expected in at 975 thousand. A print above the one million mark is certainly achievable and would provide ammunition to the view that the Fed should review its current policy.
RBA expected to hold the course
The RBA is facing a similar economic picture to that of the Fed—a rapidly improving economy and strong growth. Like the Fed, the RBA has implemented a highly accommodative policy in order to support the economy’s recovery from the COVID pandemic.
The central bank holds its policy meeting on Tuesday (4:30 GMT), and the bank is expected to maintain interest rates at 0.10% and its QE program of A$100 billion. Unless there is a surprise announcement, I would expect the RBA meeting to be a non-event for the Australian dollar.
AUD/USD technical
- On the upside, 0.7787 is the next resistance line. Above, there is resistance at 0.7864
- On the downside, there are support levels at 0.7665 and 0.7620