The AUD/USD pair has been an underdog for most of 2024, and last week was no exception, hitting a weekly close of .6433, its lowest since November 2023.
Economic and geopolitical waves affecting AUD/USD
Last week's decline came after Federal Reserve Chair Jerome Powell acknowledged that the central bank needs to keep interest rates steady longer to combat persistent inflation, which helped the dollar strengthen. The rise in geopolitical tensions in the Middle East has similarly led to a trend toward risk aversion.
It has helped keep AUD/USD above water, making the currency look cheap compared to surging commodities. The backdrop is a resilient Australian economy and growing signs of improvement in China's economy.
The main local focus for AUD/USD this week will be Wednesday's Q1 2024 inflation report. However, in this situation, it is debatable whether more robust inflation would benefit beleaguered combatants.
What to expect in the Q1 2024 CPI report
Date: Wednesday 24th April, 11:30am (AEST)
The inflation rate for the December quarter (4th quarter) of 2023 rose by 0.6% to an annualized rate of 4.1%, lower than the expected 4.3% and significantly lower than the actual figure of 5.4% in the September quarter. Trimmed average inflation, the RBA's preferred measure of inflation, rose 0.8% quarter-on-quarter, which eased the trimmed average annual measure to 4.2% year-on-year, well below 5.2% in the September quarter.
Michel Marquardt, head of price statistics at ABS, said, “The CPI increase rate in December was 0.6%, which was lower than the 1.2% increase in September 2023. This is the highest quarterly increase in 2021. “This was the smallest increase since March,” he said. Headline inflation is expected to rise 0.8% quarter-on-quarter, or 3.5% annually, in the March quarter of 2024 (Q1). The trimmed average is expected to rise 0.8% sequentially, which would allow the annual trimmed average to fall to 3.8% year over year.
This is the lowest trimmed average inflation rate since March 2022. And it's consistent with the RBA's implicit predictions. But rates remain too high for the RBA to consider cutting rates by August at the earliest.