Asia Day Ahead: Upside surprise in Australia’s inflation, Oil prices on watch

Asia Open

The Asian session was set for a mixed open, with Nikkei -0.10%, ASX -0.89% and KOSPI -0.87% at the time of writing. Overnight, market participants have to digest an upmove in US Treasury yields following weak interest at the recent two-year and five-year Treasury auctions, alongside tints of hawkishness in Federal Reserve (Fed) official Neel Kashkari’s comments. The non-voting Fed member called for “many more months of positive inflation data” as condition for policy easing, although markets seem to remain comfortable with current pricing for a September/November rate move.

The US 10-year yields headed above the 4.5% mark at 4.55% to touch a month-to-date high, offering some support for the US dollar which managed to defend an upward trendline support at the 104.34 level. This drove a largely mixed performance in Wall Street overnight, which will likely be mirrored in the Asian session as there has not been much of a catalyst for a follow-through in the risk rally for now. Strength overnight was concentrated around the usual tech sector while some recovery was seen in the energy sector on higher oil prices.

Economic data to digest: Australia’s inflation

Focus on the economic calendar revolved around fresh Australia’s inflation data, with its weighted consumer price index (CPI) read coming in higher than expected at 3.6% year-on-year versus the 3.4% consensus. The upside surprise will likely keep expectations well-anchored for no rate cuts from the Reserve Bank of Australia (RBA) this year, with the AUD/USD seeing a surge post-release before quickly paring some gains.

On the broader scale, the AUD/USD has been trading on a wedge formation since the start of the year, with recent attempt to retest the upper resistance trendline at the 0.670 level. One may watch for any successful move above the trendline resistance to pave the way to retest its December 2023 high at the 0.687 level next.

What to watch: Brent crude prices

Brent crude prices may be on watch in light of ongoing geopolitical tensions and the upcoming key OPEC+ meeting, which could see members continuing to hold off some production to support prices. Recent price lows were met with higher highs on its daily moving average convergence divergence (MACD), which points towards easing downside momentum.

That said, greater conviction for buyers may have to come from a move back above the US$84.50 level, just as its daily relative strength index (RSI) heads to retest its key 50 level. A move above the US$84.50 level may help to pave the way towards the US$86.00 level next, where the lower edge of its daily Ichimoku Cloud resistance may stand.