Asia Day Ahead: Risk sentiments improve, AUD/USD higher on Australia’s inflation

Asia Open

The Asian session is set for a positive open, with Nikkei +2.05%, ASX +0.48% and KOSPI +1.71% at the time of writing, following through from the positive session in Wall Street. Weaker-than-expected flash US purchasing managers index (PMI) figures have been very much cheered overnight, with markets riding on the perception that the data offered room for the Federal Reserve (Fed) to consider earlier rate cuts.

Downside surprises in the data saw US March manufacturing PMI dipping back into contraction territory (49.9 versus 52 forecast), while service activities edged to its lowest level in four months (50.9 versus 52 forecast).

The weaker US PMI data and a strong auction for two-year Treasuries dragged Treasury yields lower, along with a weaker US dillar, which may bode well for risk sentiments across the region. After-market earnings from Tesla also kept the risk sentiments going. Being the worst-performing S&P 500 stock year-to-date (shares down 42%), markets were looking for some consolation and the guidance for an earlier launch of new cheaper models offered that, with markets turning a blind eye to its top and bottom-line miss and a downbeat outlook for now.

Economic data to digest: Australia’s inflation

Economic data this morning saw the releases of higher-than-expected Australia’s inflation data, with 1Q inflation easing to 3.6% from previous 4.1%, but the progress fell short of the 3.4% expected. The monthly consumer price index (CPI) indicator was also a tad higher at 3.5% versus the 3.4% forecast, while the trimmed mean CPI registered a 4.0% year-on-year increase (versus 3.8% forecast).

The data may validate broad market expectations for the Reserve Bank of Australia (RBA) to keep rates high for longer, with market pricing for at most one 25 basis point (bp) rate cut from the central bank this year.

What to watch: AUD/USD

The Australia’s inflation data has triggered a surge higher in the AUD/USD in today’s session, with the pair on track to deliver its third straight day of gains. This marked a follow-through from a bullish hammer candlestick formed on 19 April, while its daily Moving Average Convergence/Divergence (MACD) revealed a bullish crossover.

Ahead, the pair may set its sight to retest a key resistance at the 0.657 level, where its daily Ichimoku Cloud resistance stands. Since January this year, the AUD/USD has failed to sustain above its daily Ichimoku Cloud, leaving it as a key hurdle for buyers to overcome. Any successful breakthrough of the 0.657 level may pave the way towards its March/April high at the 0.665 level.