Australian Dollar falls after inflation data misses expectations
The Australian Dollar fell over one percent lower against the greenback on Wednesday after first quarter Australian inflation data came in much weaker than expected. Core inflation, which is the Reserve Bank of Australia’s preferred measure of domestic inflation, came in at its weakest level since 2003.
The Australian Dollar tumbled towards the 0.7000 level after the first quarter inflation reading was released, as the chances of the Reserve Bank of Australia cutting interest rates next month have now dramatically increased.
Wednesday’s inflation reading from the first three months of this year missed on all fronts, with quarter-on-quarter CPI inflation coming in flat, while the year-on-year CPI comparison figure came in at a worse than expected 1.6 percent. Annual CPI inflation has now missed the Reserve Bank of Australia’s two to three percent headline target for nearly three years.
Just last week, the Reserve Bank of Australia meeting minutes highlighted the economic conditions that RBA policymakers would need to see before they would consider cutting interest this year. Weaker than expected inflation was highlighted as one of the main reasons to consider cutting interest rates, alongside steadily rising unemployment in Australia.
The official Australian unemployment rate ticked up to five percent last, as 22,600 part-jobs were lost on a monthly basis. The parameters for a rate cut set by RBA members appear to have been met; it now remains to be seen if the Reserve Bank of Australia will wait to see if the unemployment rate continues to trend higher or they will act immediately and cut interest rates next month.
AUD/USD Daily Mountain Chart | Source: ActivTrader
The Australian Dollar is likely to come under heavy technical selling pressure against the U.S Dollar if price falls below the psychological 0.7000 level. The only notable support below the 0.7000 level for the AUD/USD pair is then found at the 0.6935 and 0.6880 levels, while near-term resistance for the AUD/USD is located at the 0.7040 and 0.7065 levels.
Written by Nathan Batchelor, External Analyst
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