AUD/USD relentless rally accelerates as Australia inflation soars to 2014 high

The AUD/USD relentless rally continued after the bureau of statistics released the March consumer data that beat analysts’ forecasts. The pair also rose due to the overall weakness of the US dollar and the fact that government has started to reopen the economy.

Australia inflation rises in Q1

The AUD/USD pair rose to a high of 0.6532 after the Australian Bureau of Statistics (ABS) released the CPI data. The pair’s price is the highest it has been since March 11. Also, the rally makes the Australian dollar the best-performing currency in the developed countries in the past month.

The data from ABS showed that consumer prices rose by 0.3% in the first quarter. This was below the 0.7% rise in the fourth quarter and the consensus estimates of 0.2%. The annual inflation rose to 2.2% from the previous 1.8%. This rate is the highest it has been since October 2014 and is above the RBA’s target of 2.2%.

The bureau attributed the upbeat rise in consumer prices to the ongoing coronavirus pandemic. Additionally, the bureau said that the recent bushfires and drought in New South Wales contributed to the price increases.

The main drivers for consumer prices were education, whose price rose by 2.6%. At the same time, the price of food and non-alcoholic beverages, and health rose by 1.9% and 1.7% respectively.

These increases were offset by a significant price in automotive fuel, domestic holidays, and accommodation, whose price declined by 6%, 3.1%, and 3.0%. These declines happened because the price of crude oil dropped by more than 50% in the first quarter. At the same time, most hotels and restaurants were closed in the quarter. In a statement, the bureau’s Chief Economist said:

“There were some price effects of COVID-19 apparent in the March quarter due to higher purchasing of certain products towards the end of the quarter, as restrictions came into effect. More evident effects of COVID-19 are expected in the June quarter CPI.”

The CPI data came a week after the bureau released upbeat retail sales numbers.

Australian dollar rises as country reopens

The Australian dollar has also surged because the country has started to ease restrictions on movements. This happened as the number of daily confirmed cases dropped significantly. Yesterday, the country confirmed just 18 cases, which was a big improvement from the March 22 peak of 537.

The Australian government has now started allowing some businesses to operate. In Western Australia, activities like hiking and group exercise have been allowed while restaurants and travel bans remain. In Queensland, the state government has said it will start easing restrictions this weekend while beaches have started to reopen in New South Wales. Still, most restrictions will remain in Victoria.

The easing of restrictions is a positive thing for Australia because it will help companies go back to work. Most importantly, it will help the country’s miners and manufacturers start exporting goods to China, where businesses have started recovering.

AUD/USD rises ahead of Federal Reserve

Another reason why the Australian dollar has gained is the US dollar weakness. The US dollar index continued its weakness, declining by 25 basis points during the Asian session. The index fell because the dollar weakened against most of its constituent currencies like Canadian dollar, Swedish krone, and Japanese yen.

This weakness happened as the Federal Reserve started its monetary policy meeting yesterday. Analysts polled by Bloomberg expect the Fed to leave interest rates unchanged at the current rate of between 0% and 0.25%. According to Bloomberg, the Fed will also decide about how low it can leave rates this low.

A number of analysts have suggested that the Fed should commit to leaving rates this low until the unemployment rate falls back to 4%. Others have said that the bank should commit to low interest rates until inflation rises to 2.5%.

In addition to the Fed, the US will release the preliminary reading of first quarter GDP data. According to Refinitiv, most analysts expect the economy to have contracted by 4% in the quarter. We will have to wait and see because of how dramatic the quarter ended.

AUD/USD technical outlook

On the daily chart, the AUD/USD pair soared to a high of 0.6530. This price is above the 61.8% Fibonacci retracement level. It is also a few pips above the 100-day exponential moving average. Further, it has formed two consecutive three white soldiers pattern. Therefore, I expect the bullish trend to continue as bulls attempt to test the 78.6% Fibonacci retracement level at 0.6700. This trend will continue so long as it remains above the 61.8% support at 0.6450.