Despite the Federal Reserve’s hawkish minutes and robust U.S. economic data, the AUD/USD pair continued to rise, until it reached the 200 SMA (purple) on the daily chart at 0.6674. The main reason for the U.S. dollar’s struggle to gain despite positive data and Fed comments has been falling U.S. Treasury yields. However, a sharp increase in Treasury yields yesterday provided support for the USD, contributing to a bearish reversal in the AUD/USD pair.

AUD/USD Chart Daily – Forming A Bearish Reversing Patter at the 200 SMA

Additionally, Australia’s weak retail sales growth for April, which showed a mere 0.1% increase, could signal potential economic challenges ahead. This subdued consumer spending might negatively impact the Australian currency’s outlook, as it reflects high borrowing costs and high rents weighing on consumer spending despite solid inflation and population growth. If these economic difficulties persist, they could further undermine the AUD, especially if U.S. economic strength continues to drive up Treasury yields and support the USD. Today we had the CPI inflation report from Australia, which was expected to show a slight decline in April from 3.5% to 3.4%.

Australian Inflation CPI for April

The Australian Consumer Price Index (CPI) data for April exceeded expectations, coming in at 3.6% year-over-year (y/y), above the consensus estimate of 3.4% and higher than the prior reading of 3.5%. The month-over-month (m/m) CPI increased by 0.76%. Additionally, the trimmed mean CPI, which excludes volatile items, rose to 4.1% y/y, up from the previous 4.0%. The CPI excluding volatile items and holiday travel remained steady at 4.1% y/y.

Key Takeaways:

1. Higher-than-Expected Inflation: The CPI figures indicate that inflation is running higher than anticipated. The year-over-year increase of 3.6% surpasses the expected 3.4%, suggesting persistent inflationary pressures.
2. Trimmed Mean CPI Increase: The trimmed mean CPI, which offers a clearer picture by excluding volatile items, also rose to 4.1% y/y from 4.0%. This indicates underlying inflationary pressures are not easing.
3. Stable Core Inflation: The CPI excluding volatile items and holiday travel remained unchanged at 4.1% y/y, indicating that core inflation is stable but elevated.

AUD/USD Live Chart