AUD/USD falters at a four-month high

It's been this way for a while now. Just as the AUD/USD appears set to make a meaningful move higher, the tide turns, leaving it stranded high and dry.

Last week was no exception. The AUD/USD, perched at a four-month high, fell for four consecutive sessions before the shorts squared up ahead of the weekend, sparing the local unit further blushes.

Behind last week's colossal collapse, softer domestic data, including consumer confidence and jobs data, up against stronger US economic data and hawkish Fed speak, which supported the US dollar. Throwing fuel on the fire, an overdue pullback in commodity prices after a good run higher.

This week, the key local drivers of the AUD/USD will be retail sales data on Tuesday, which are expected to rise by 0.1% after falling by 0.4% in March. Also, on the calendar are building approvals for April (Thursday), Q1 private sector capex (Thursday), and the Monthly CPI indicator for April (Wednesday).

Monthly CPI indicator

Date: Wednesday, 29 May at 11.30am AEST

Several key Australian inflation measures released in late April surprised to the upside. Headline inflation in Q1 2024 rose by 3.6% year-on-year (YoY), down from 4.1% in the prior period but above market expectations of 3.4%. The RBA’s preferred measure of core inflation, Trimmed Mean, increased by 4% YoY, above market expectations of 3.8%. Separately, the Monthly CPI indicator for March rose 3.5% YoY, above market expectations, looking for a rise of 3.2% YoY.

The higher-than-expected inflation readings were noted in the minutes from the RBA’s May Board meeting: “Inflation had eased further in the March quarter in year-ended terms, but the pace of disinflation had slowed, and the recent inflation data were stronger than had been expected in February. “

While the RBA Board discussed raising rates at the May meeting, it elected to keep rates on hold as "staff forecasts presented a credible path back to the inflation target, with the risks surrounding the forecasts judged to be balanced."

As April is the first month of the new quarter, this Monthly CPI indicator will only provide updates on about 60% of the basket. Additionally, it will be skewed towards goods rather than the troublesome service components. The expectation is for the Monthly Indicator in April to ease marginally to 3.4% YoY from 3.5%. The rates market starts the new week, pricing in 8bp (~30%) of RBA rate cuts for December.

Monthly CPI indicator

AUD/USD technical analysis

On the weekly chart, the AUD/USD faltered last week from ahead of resistance from the contracting triangle. Downtrend resistance from the January 2023 .7158 high is currently viewed at .6740ish. Uptrend support from the October 2022 .6170 low is at .6350ish.

AUD/USD weekly chart

To resurrect its upside ambitions and to increase the chances that the AUD/USD based at the April 19 .6362 low, the AUD/USD needs to break above last week's .6714 high and then the multi-week trendline resistance noted above at .6740ish. In this case, the next upside target would become a cluster of horizontal resistance at .6870/00.

On the downside, the AUD/USD has initial support at last week's .6592 low before the 200-day moving average at .6530. Below that, there is a layer of support at .6480ish from swing lows in March and April, reinforced by the February .6442 low.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 27 May 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}