The Australian dollar was unable to benefit over the last few days on the back of surging energy prices which is a bit unusual given how tightly the currency is connected to such situations
“I would be lying if I didn’t suggest I was bit disappointed that the Aussie didn’t catch more of an updraft from surging energy prices,” wrote Stephen Innes managing partner and head of trading at SPI Asset Management. “But the market remains focused on this week’s CPI suggesting we could stay in close ranges.”
The Australian dollar indeed faces a huge test as we enter the Asian trading session tomorrow with the release of Inflation data from Australia which will more than likely dictate which direction the Reserve Bank of Australia will move on interest rates.
The number expected tomorrow is 0.4 percent with anything less likely to trigger a rate cut as early as next month which would hit the Australian dollar like a ton of bricks.
If the number does reach consensus many analysts think this will only buy the RBA some time but towards the end of the year they will eventually have to cut rates in order to breath some life into the economy.
This thought pattern is likely to keep a lid on any gains in the Aussie dollar as the year unfolds
"The build-up to the May RBA meeting will reach a crescendo in the coming weeks as the CPI looms large. With our expectation of a +0.4% we think that the case for a RBA cut remains thin, However, there will be little tolerance for any weakness, and we think that a core print in the realms of +0.2% could trigger an easing from the RBA," says Rahul Kahare, an economist ANZ.
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