The Australian dollar is sliding ahead of Wednesday's key inflation report

Chris Hyde/Getty Images
  • The Australian dollar fell for a second consecutive session on Tuesday, undermined by a sudden bout of US dollar strength.
  • The US dollar index hit the highest level since June 2017. No clear catalyst explains the move, though.
  • All interest today will be on the release of Australia’s key March quarter consumer price inflation report.

The Australian dollar continued to lose ground on Tuesday, falling against most major crosses ahead of the release of Australia’s March quarter consumer price inflation (CPI) report.

Here’s the scoreboard at 7am in Sydney on Wednesday.

AUD/USD 0.7101 , -0.0032 , -0.45%
AUD/JPY 79.43 , -0.40 , -0.50%
AUD/CNH 4.7780 , -0.009 , -0.19%
AUD/EUR 0.6324 , -0.001 , -0.16%
AUD/GBP 0.5488 , -0.0004 , -0.07%
AUD/NZD 1.0665 , -0.001 , -0.09%
AUD/CAD 0.9533 , 0.001 , 0.11%

With the exception of the Canadian dollar which fell heavily despite further strength in crude oil prices, the Aussie sipped against all other major crosses, particularly the Japanese yen and US dollar.

While it was slightly overshadowed by the rally in the yen, the greenback was the major talking point for the session with the US dollar index climbing to the highest level since June 2017 in European trade, helping to place downward pressure on other major currencies, including the Aussie.

As for what drove the move, there was no obvious catalyst.

US economic data released during the session was mixed, and only second-tier in nature, while US treasury yields actually fell back a touch. And while the strength in the greenback and yen suggests a degree of risk aversion from investors, US stocks continued to climb with the S&P 500 and Nasdaq both closing at record highs.

Some put the greenback move down to stop-loss orders being triggered, while others speculated that it could reflect increased confidence in the US economic outlook following a solid start to the US corporate earnings season.

Whatever the factor, the AUD/USD was among the worst performers on Tuesday, falling to as low at .7082 — a level not seen since early April — before recovering modestly towards the close.

Investing.comAUD/USD Hourly Chart

Turning to the session ahead, all focus among Aussie dollar traders will be on the release of Australia’s Q1 CPI report at 11.30am AEST.

The median economist forecast for headline inflation looks a quarterly increase of just 0.2%, seeing the year-ended rate slow to 1.5%. For underlying inflation, of more importance when it comes to the outlook for monetary policy settings from the RBA, economists expect inflation to increase by 0.4% for the quarter and 1.65% over the year.

In the year to December, the year-ended underlying inflation rate stood at 1.77%, below the bottom of the RBA 2% to 3% medium-term target. Previously, the RBA has stated that a lack of progress in returning inflation to its target was one catalyst that could warrant a further reduction in Australia’s cash rate.

Underlying inflation has remained below the RBA’s target rage for three consecutive years.

This 10-second guide has more on what to look out for in the CPI report.

Outside of the Australian inflation report, the economic calendar elsewhere is relatively quiet on Wednesday.

The IFO Business Climate Index from Germany and US crude oil inventory data from the United States are the headline data acts. The Bank of Canada will also announce its April monetary policy decision. No change in policy rates is expected, or likely, but there will be interest as to whether or not the bank will tweak its forward guidance on the outlook for policy settings.

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