Australian dollar forecast: AUD/USD eyes China CPI ahead of event-heavy week

[ArvinIG]

Chinese inflation and factory-gate prices to cross the wires today as PBOC move looms and AUD/USD is trading at its 20-day Simple Moving Average (SMA) after prices fell last week.

Source: Bloomberg

 

Forex United States dollar Australian dollar AUD/USD Consumer price index China

 

Monday’s Asia-Pacific outlook

The Australian dollar will be in focus to kick off the Asia-Pacific trading week as Chines CPI data approaches. AUD/USD hit a fresh 2022 high last week but subsequently surrendered those gains and turned lower as market sentiment deteriorated. Oil prices may face additional pressure as the lockdown in Shanghai moves into its third week.

China’s consumer price index (CPI) for March is set to cross the wires at 01:30 GMT. Analysts expect to see a 1.2% year-over-year rise, according to a Bloomberg survey. That would be up from February’s 0.9% y/y figure. Factory gate prices, via the producer price index (PPI), are seen easing to 7.9% y/y. Today’s data comes amid growing expectations for a rate cut from the People’s Bank of China. That easing may come as soon as this week, even if CPI comes in hotter than expected. The Australian dollar would likely respond well to looser policy in China, given the economic link between the two countries.

The US dollar and Federal Reserve interest rate expectations will likely remain a driving factor to broader market sentiment after a volatile week on Wall Street. The US dollar DXY Index rose to a fresh 2022 high before pulling back slightly into the weekend. Meanwhile, USD/JPY put in another strong performance on yen weakness due to the divergent policy outlooks between the Fed and the Bank of Japan.

Oil traders will have US inventory data in focus after the Energy Information Administration (EIA) reported a surprise build in crude oil stocks. The lockdown in Shanghai is also tempering demand in Asia, while production around the world continues to slowly increase. This morning, New Zealand’s March electronic retail card spending crossed the wires at -0.5%, down from February’s 1.1% figure.

The economic docket for the rest of today’s session is rather sparse, but traders are bracing for several high-impact events this week, including Australia’s March jobs report and the European Central Bank interest rate decision. US inflation data is also due out, with analysts seeing the March figure dropping at 8.5% on a y/y basis. That would be up sharply from the multi-decade high of 7.9% y/y reached in February. The US dollar may break above the 100 mark if prices come in hotter than expected.

Australian dollar technical forecast

AUD/USD is trading at its 20-day Simple Moving Average (SMA) after falling in last week’s trading. A rebound from the moving average would see potential resistance at the 23.6% Fibonacci retracement before taking aim at the recent high of 0.7661. A Bearish Engulfing candlestick formed at that high. A break below the 20-day SMA would see prices potentially fall all the way down to the 50-day SMA if bears could break the 61.8% Fib level.

AUD/USD four-hour chart

Source: TradingView

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Thomas Westwater | Analyst, DailyFX, New York City
11 April 2022