Aussie Propelled by CPI, Has Stock Market Correction Ended?

Australian Dollar is having a robust, broad-based rally today, boosted by unexpectedly strong CPI data. This inflation report is particularly notable given the unexpected reacceleration in monthly CPI in March, which contributed to the quarterly figure not slowing as much as anticipated. Meanwhile, both services and domestic inflation remain elevated. The set of data is unlikely to alter RBA’s “not ruling anything in or out” stance at the upcoming meeting in May. The timing of the first rate cut is now pushed further to the end of the year, and there is even possibility that the next move is a rate hike.

Overall in the currency markets, New Zealand Dollar and Sterling also strengthened as the second and third strongest for the day, benefiting from improved risk sentiment this week. This uplift in market mood has sparked questions about whether the correction in global stocks observed this month has run its course, a key point of focus for the coming days.

Conversely, Canadian Dollar is currently the weakest performer today, with market participants awaiting BoC summary of deliberations. There is speculation that BoC may commence a policy easing cycle as early as June, although it is expected to be a finely balanced decision. Investors are keenly awaiting the meeting minutes for further clues on the discussion among board members.

Meanwhile, Yen and Dollar are the next weakest, reflective of the prevailing risk-on market sentiment. Euro and Swiss Franc are currently positioned in the middle of the performance chart.

Technically, DOW’s break of 38483.25 resistance argues that fall from 39899.05 has completed at 37611.56, ahead of 38.2% retracement of 32327.20 to 39899.05 at 37000.42. Rebound from there is now seen as the second leg of the corrective pattern from 39899.05. Sustained trading above 55 D EMA (now at 38461.65) will strengthen this case and bring stronger rally back towards 39889.05 high.

In Asia, at the time of writing, Nikkei is up 2.33%. Hong Kong HSI is up 1.99%. China Shanghai SSE is up 0.36%. Singapore Strait Times is up 0.98%. Japan 10-year JGB yield is up 0.0035 at 0.890. Overnight, DOW rose 0.69%. S&P 500 rose 1.20%. NASDAQ rose 1.59%. 10-year yield fell -0.025 to 4.598.

Australia CPI slows less than expected in Q1, accelerates in Mar

In Q1, Australia’s CPI slowed from 4.1% yoy to 3.6% yoy, exceeding market expectations of 3.4% yoy. Similarly, trimmed mean CPI, which excludes volatile price items and provides a clearer view of underlying inflation trends, also decelerated less than expected, moving from 4.2% yoy to 4.0% yoy, against predictions of 3.8% yoy.

The breakdown by category shows a general slowdown across the board. Goods inflation decreased from 3.8% yoy to 3.1% yoy, while services inflation eased from 4.6% yoy to 4.3% yoy. Tradeable inflation, which includes items that can be imported or exported, slowed more significantly from 1.5% yoy to 0.9% yoy. Non-tradeable inflation, representing goods and services not exposed to international markets, also saw a reduction from 5.4% yoy to 5.0% yoy.

However, on a quarterly basis, CPI rose by 1.0% qoq in Q1, marking an acceleration from the previous quarter’s 0.6% qoq and outpacing expectations of a 0.8% rise. This quarterly increase suggests that, despite the annual slowdown, price pressures within the economy intensified at the start of the year. Trimmed mean CPI on a quarterly basis mirrored this trend, rising 1.0% qoq compared to the previous 0.8% qoq, also surpassing the expected 0.8% qoq.

Monthly figures reinforce the notion of persistent inflationary pressures, with CPI ticking up from 3.4% yoy to 3.5% yoy, again exceeding expectations.

New Zealand’s goods exports rises 3.8% yoy in Mar, imports fell -25% yoy

New Zealand’s goods exports rose 3.8% yoy to NZD 6.5B in March. Goods imports fell -25% yoy to NZD 5.9B. Monthly trade balance was a surplus of NZD 588m, versus expectation of NZD -505m deficit.

Exports to US and EU showed increases of 8.0% yoy and 3.6% yoy respectively. However, exports to major trading partners like China (-1.9% yoy), Australia (-3.7% yoy), and Japan (-15% yoy) declined.

On the import side, there were significant reductions across all major partners. Imports from EU saw the sharpest decline at -43% yoy, followed closely by US at -42% yoy. Imports from China, Australia, and South Korea were down -20% yoy, -13% yoy, and -21% yoy respectively.

Looking ahead

Swiss Credit Suisse eocnomic expetations and German Ifo business climate will be released in European session. US durable goods orders will be released later in US session. Canada will release retail sales and BoC summary of deliberations.

AUD/USD Daily Report

Daily Pivots: (S1) 0.6455; (P) 0.6473; (R1) 0.6504; More…

AUD/USD’s strong break of 0.6480 support turned resistance confirms short term bottoming at 0.6361, and intraday bias is back on the upside. Sustained break of 55 D EMA (now at 0.6527) will bring further rally to 0.6643 resistance next. On the downside, though, break of 0.6440 minor support will indicate rejection by 55 D EMA and retain near term bearishness. Retest of 0.6361 low should be seen next.

In the bigger picture, price actions from 0.6169 (2022 low) are seen as a medium term corrective pattern to the down trend from 0.8006 (2021 high). Fall from 0.7156 (2023 high) is seen as the second leg, which is still in progress. Overall, sideway trading could continue in range of 0.6169/7156 for some more time. But as long as 0.7156 holds, an eventual downside breakout would be mildly in favor.

Economic Indicators Update