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Will Business Confidence Shake Up AUD?

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Fundamental analysis of Forex market

The Australian dollar has started the week with a whimper. Currently, AUD/USD is currently trading at 0.7620.

Australia releases the NAB Business Confidence early on Tuesday (1:30 GMT). Business confidence continues to show stronger optimism, rising to 16 in February, up from 10 beforehand. The Australian economy has recovered remarkably well from the Covid-19 downturn – unemployment has dropped below 6% and commodity prices are rising as the global economy finds its footing.

A major sore point in the country’s vaccine rollout. Australia had banked on the AstraZeneca vaccine for most of 26 million residents and had planned to vaccinate almost all by the end of 2021. However, with recommendations that people under 50 should not receive the AstraZeneca shot, the government has had to abandon this goal and is scrambling to find millions of Pfizer shots.

For years, US inflation has been low and off the radar of investors. With plenty of pent-up demand due to the Covid crisis, inflation has moved higher and has become a central focus for the market over the past several months. On Friday, the US released the March Producer Price Index, which measures inflation at a wholesale level.  Both the headline and core readings accelerated in March and beat the forecast. Headline inflation rose 1% MoM and 4.2% YoY  – the latter to its highest level since September 2011. Core PPI, which excludes food and energy prices, climbed 0.7% MoM and 3.1% YoY. The annual rate matched a high last seen in February 2011.

With PPI numbers higher than expected, the markets are keeping a close eye on consumer inflation data (Tuesday, 12:30 GMT). If CPI beats the forecast, that could force the Federal Reserve to re-evaluate its pledge not to raise rates prior to 2024. The Fed isn’t even discussing tapering its QE programme, but rising inflation could lead the Fed to reconsider reducing QE if it is concerned that the economy may overheat if it doesn’t take action.

AUD/USD Technical

  • AUD/USD faces resistance at 0.7668. Above, there is resistance at 0.7717
  • 0.7579 is the first line of support. This is followed by support at 0.7539