• Because of the better risk perception on Wednesday, the Australian dollar strengthened significantly.
• With billions of dollars set aside, the Australian government is aiming to combat headline inflation and lessen the burden of rising living expenses.
• As markets processed better-than-expected US PPI data, the US dollar lost momentum.

Despite the Australian Bureau of Statistics’ Wednesday announcement of the Wage Price Index (Q1), which was lower than anticipated, the Australian dollar (AUD) is still stable and is trending upward. This index acts as a gauge for inflation in labor costs. The stronger risk appetite may be the reason for the Australian dollar’s gain.

Australia’s budget for 2024–25 is once again in deficit after showing a $9.3 billion surplus in 2023–24. The Australian government has allocated billions to lower energy and rent costs, as well as to lower income taxes, to combat headline inflation and ease the burden of living expenses.

For the second day in a row, losses are still being sustained in the US Dollar Index (DXY), which measures how the USD performs against six major currencies. As they await Wednesday’s Consumer Price Index news, investors have processed better-than-expected US Producer Price Index data for April.

Jerome Powell, the chair of the Federal Reserve, has projected that inflation will continue to drop. Powell’s view of the disinflation forecast was less optimistic than in earlier ones. Additionally, he emphasized that GDP growth is anticipated to be at least 2%, attributing this optimistic prediction to the robustness of the labor market.

Australian dollar gains because of increased risk appetite, according to Daily Digest Market Movers

• Australia’s Wage Price Index (QoQ) showed a 0.8% increase in the first quarter, falling slightly below the anticipated rise of 0.9%. On a year-over-year basis, it saw a 4.1% increase, also slightly lower than the expected 4.2% rise.

• The US Bureau of Labor Statistics (BLS) reported that the Producer Price Index (PPI) increased by 0.5% month-over-month in April, surpassing the forecast of 0.3% and rebounding from March’s contraction of -0.1%. Additionally, the Core PPI, which excludes volatile food and energy prices, also surged by 0.5% MoM, exceeding projections of 0.2%.
• A Reuters report cited Treasurer of Australia Jim Chalmers, expressing his expectation that the current headline inflation rate of 3.6% will return to the Reserve Bank of Australia’s target range of 2-3% by the end of the year. If this scenario unfolds, the central bank will likely consider cutting interest rates earlier than markets had anticipated.
• Australia’s Treasury announced on Sunday that they forecasted that inflation could re-enter the Reserve Bank of Australia’s (RBA) target range by the end of 2024. In their December outlook, officials predicted that CPI inflation would decrease to 3.75% by mid-2024 and 2.75% by mid-2025, aligning it with the RBA’s target range.
• According to a consumer mood survey by the Federal Reserve Bank of New York, US consumers predict a significant acceleration of inflation over the next year, with forecasts rising to 3.3%. This represents an increase over the 3.0% consumer one-year inflation expected figure released in March.
• Fed Vice Chair Philip Jefferson reportedly argued in favor of holding current interest rates until more clear indications of an easing of inflation surface.

The Australian Dollar holds its position above 0.6600 according to technical analysis

On Wednesday, the Australian dollar is trading at about 0.6630. The AUD/USD pair is forming a symmetric triangle as it consolidates. In addition, the 14-day Relative Strength Index (RSI) shows a bullish inclination and stays above the 50 mark.

Near the swing area at 0.6650, the upper barrier of the AUD/USD pair could be challenged. If the pair breaks over this barrier, they may go back to their high from March, which was 0.6667. If they continue to rise, they might even aim for the psychological threshold of 0.6700.

Australian Dollar price this week

The Australian Dollar’s (AUD) weekly percentage movement against a list of major currencies is displayed in the table below. When compared to the Japanese Yen, the Australian dollar was the strongest.