Thursday was a far more interesting day for the Australian Dollar than the whole of the previous three days of the week. AUD/USD initially fell after a soft-ish labour market report, surged back on to a US 78 cents ‘big figure’ then tumbled to 0.7720 as the US Dollar caught a huge bid on the back of rising US bond yields. In the terminology of technical analysis, it was a classic “key day reversal” with a higher high, lower low and lower close than the previous day and it will be very interesting to see if this relatively rare indicator again proves correct. Overnight in Asia and in Europe this morning, price action has been what this relatively rare indicator would have predicted: AUD/USD is lower again and has fallen on to US 76 cents for the first time in 10 days.
On the Australian stock exchange, the ASX Metals & Mining index hit a three-month high on Thursday, driven by sharply higher prices for industrial metals. Aluminium is up 32% so far this month and nickel is 20% up this week alone on Russian sanctions and supply shortage concerns. Three-month nickel on the London Metal Exchange rallied as much as 9.3% to $16,690 a tonne yesterday, the highest since December, 2014. Australia’s biggest export commodity, iron ore, meantime, is up 8.5% over the last three days. Whether these metals can now sustain these gains in the face of a stronger USD remains to be seen.
After New Zealand produced its CPI figures yesterday, thoughts now turn to Australia’s numbers next Tuesday. Australian consumer price inflation has been below the Reserve Bank of Australia’s 2-3% annual target for more than two years, a trend which is expected to continue in the first half of this year. A Bloomberg survey of 20 analysts shows the median forecast for underlying CPI — of more importance when it comes to the outlook for interest rate settings — is for a quarterly increase of 0.5%, leaving the change on a year earlier at 1.85% after 1.87% in the December quarter. Headline CPI, including volatile price movements over both the quarter and year, is also expected to increase by 0.5% over the quarter, seeing the annual rate lift to 2% from 1.9%. The interest rate market only ascribes a 22% probability to a rise in rates by December and is not fully pricing in a hike until the middle of next year. The Australian Dollar opens in North America this morning at USD0.7690, with AUD/NZD at 1.0655 and AUD/CAD 0.9750.