Australian Dollar Flies High with Kiwi on Sinking US Dollar. Where to for AUD/USD?

Australian Dollar, AUD/USD, AUD/NZD, US PPI, RBA, AU CPI, RBNZ, Federal Reserve – Talking Points

• the Australian dollars Jump to new heights on steep descents U.S. dollar
• the New Zealand dollar It also registered a strong rise in the “risk” condition.
• The Reserve Bank of Australia, the Reserve Bank of New Zealand, and the Federal Reserve all have different rate paths. Will they drive currency movements?

The Aussie jumped higher again overnight after the US PPI deteriorated the markets leaving the greenback under renewed pressure to the downside. The Australian and New Zealand dollars were the biggest beneficiaries, with the commodity complex also higher.

To summarize, US Final PPI demand was below estimates at 2.7% yoy through end-March instead of the expected 3.0% and 4.6% previously. The monthly reading for March was -0.5% instead of the expected flat figure and -0.1% previously.

While stock indices, commodities and higher beta currencies such as the Australian and New Zealand dollars got a boost, Treasury yields remained near current levels. Although the back end of the curve ended the day by a handful of basis points (bps).

The interest rate market has barely changed its view of the possibility of the Federal Reserve raising interest rates in early May by 25 basis points and has remained near 70%.

From a macro perspective, with the PPI sliding below the CPI, this opens up room for companies to either cash in at wider profit margins or pass lower prices on to consumers. Either way, Wall Street liked it.

Positive sentiment spread across commodity markets as gold and silver printed new highs, as did most industrial metals, though iron ore struggled.

The market views the Australian dollar and the New Zealand dollar as sensitive to the global growth cycle and as stocks and commodities sail north, so have they.

AUD/NZD looked above 1.0800 but was unable to sustain the gains and the struggle may reflect divergence in monetary policy between the RBA and RBNZ. The latter is expected to rise by 25 basis points in late May due to the interest rate market, while the RBA is expected to remain on hold at its early May meeting.

Both central banks will get CPI updates in the coming weeks and this could be crucial for the direction in AUD/NZD. The RBNZ’s official rate is 165 basis points above the RBA at 5.25%, although the latest quarterly CPI reading for Australia was higher than New Zealand’s.

The RBA was citing the less accurate monthly inflation measure as reassuring for its relatively dovish stance. A benign quarterly CPI figure on April 26th will support their direction but another hot read above may force them to reassess their current situation.

AUD/USD, NZD/USD, AUD/NZD, DXY (USD) INDEX, GOLD, COPPER, IRON ORE

Chart created in TradingView

– By Daniel McCarthy, Strategist for DailyFX.com

Please contact Daniel via @employee on Twitter