The AUD/USD exchange rate wavered on Wednesday morning after a series of weak economic numbers from Australia. The pair was trading at 0.6660 as traders shifted their focus to the upcoming US nonfarm payrolls (NFP) data.
Australia rate hike hopes fade
The AUD/USD pair was in a tight range after several important weak economic numbers from Australia. On Tuesday, a report showed that its current account moved into a $4.9 billion deficit in the first quarter, a big reversal from the $2.7 billion surplus in Q4.
Another report revealed that company gross and pre-tax profits dipped by 2.5% and 8.4% in the first quarter. On the positive side, the important retail sales data showed a 0.1% improvement from the previous month.
On Wednesday, a report by Judo Bank revealed that the services PMI dropped from 53.6 in April to 52.5 in April, missing the estimated 53.1. Most importantly, data showed that the country’s economy grew by 0.1% in Q1 (QoQ) and 1.1% (YoY). This growth rate was lower than the median estimates of 0.2% and 1.2%.
Therefore, this performance means that the Reserve Bank of Australia (RBA) is confronting a stagflation situation. Stagflation happens when a country’s economic growth is slowing in a high-inflation environment.
Stagflation is one of the toughest things that any central bank can confront. Cutting interest rates to stimulate the economy could lead to higher inflation. On the other hand, hiking rates to temper inflation can affect economic growth.
Before these numbers came out, some analysts expected that the RBA would buck the trend and hike interest rates in this month’s meeting. The latest minutes showed that some officials considered hiking interest rates to deal with inflation. This view could change because of the slowing economy.
The upcoming US jobs numbers will be the next important AUD/USD news. ADP will publish its estimate of private payrolls on Wednesday while the Bureau of Labor Statistics (BLS) will release the official nonfarm payrolls (NFP) data on Friday. These numbers will play a role in predicting when the Fed will start cuttng rates.
AUD/USD technical analysis
The daily chart shows that the AUD/USD exchange rate has held steady in the past few days. It was trading at 0.6660 on Wednesday, where it has been stuck at since last week. The pair has formed an inverse head and shoulders pattern and it sits above the 50-day and 25-day Exponential Moving Averages (EMA).
The Relative Strength Index (RSI) and the MACD indicators have pointed upwards. Therefore, the pair’s outlook is bullish, with the next point to watch being at 0.6870, its highest swing on December 28th. This view will be confirmed if the price moves above the key resistance at 0.6715.
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