Australian dollar rides the iron ore bull

See the latest Australian dollar analysis here:

Macro Afternoon

Last night’s Federal Reserve FOMC meeting put a rocket back under the Australian dollar completely wiping out the pullback on the ABS CPI print yesterday that undershot inflation expectations. The Pacific Peso is now pushing up through 78 cents versus USD and looks set to put in a new weekly and monthly high as the currency complex goes off USD on the “no taper for you” trade:

Meanwhile, iron ore looks set to head straight up through the $200 spot price, which is having somewhat of an effect on the Aussie, but this chart below from Macrobond shows there’s potential catch up to play here now that the Fed has cleared the air on its non-existent hawkish inflation stance. The signal is clear:

AUD: CPI & jobs show some weakness but broader backdrop still positive

The Australian dollar is modestly under performing other G10 currencies today with the FX markets responding to some weaker than expected data releases. The Q1 CPI data was weaker with the annual rate rising less than expected from 0.9% to 1.1% – the consensus was for a gain of 1.4%. The Trimmed Mean was slightly weaker although the Weighted Median annual rate was in line with expectations (1.3%). In addition, the weekly employment data revealed employment declined 1.8% over the two weeks to 10th April although the timing of Easter means it is less certain what this drop means for the key jobs report for April to be released on 20th May. Weakness is expected given the government’s JobKeeper support expired on 28th March. However, Job Ads m/m growth has been well above average since the initial phase of recovery post-COVID suggesting the labour market can withstand the end of the government support scheme without too much downturn.

The signal is pretty clear and the longer term technical picture is showing a lot of potential upside for the Aussie once it clears the 2017/2018 inflection point at the 80.5 cent barrier, with 86 cents at the low end of the range target:

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