Aussie Dollar (AUD/USD) Analysis
- Risk sentiment props up AUD with US CPI data on the horizon
- US CPI expected to redirect attention to the disinflation narrative after consecutive months of stubborn price pressures
- AUD/USD reveals key resistance levels in the event CPI heads lower
- Get your hands on the Aussie dollar Q2 outlook today for exclusive insights into key market catalysts that should be on every trader's radar:
Risk Sentiment Props up AUD with US CPI Data on the Horizon
In the early stages of 2024, the typical positive relationship between the S&P 500 and the Aussie dollar began to break down. Stocks continued higher while strong US inflation and robust growth buoyed the US dollar , weighing on AUD which and sending AUD/ USD sideways, or at times, lower.
However, the typical positive relationship appears to be getting back on track as both paths appear to be moving in lockstep – something that the correlation coefficient index reveals at the bottom of the chart (using a 20 day rolling correlation). A correlation coefficient of 1 means two markets are perfectly in lockstep and the current reading of 0.87 reveals a solid recovery of late. Therefore, as the S&P 500 is on track to test its all-time high, AUD may benefit from the continued 'risk on' move.
The one potential hurdle this week is US CPI, which is expected to show a return to the disinflation narrative but markets will be focused on a much more nuanced measure of inflation, month-on-month (MoM) core CPI. Month-on-month core CPI has trended around the 0.4% mark- twice that which is believed to bring inflation back down to the 2% target. Early estimates have the figure at 0.3% but markets may look even closer as this figure tends to be rounded up or down. For example, a 2.6% reading may receive a bearish repricing in USD with 0.34% being met with a more bullish response despite the fact that both figures will show as 0.3%.
AUD/USD Compared to S&P 500 (Correlation Recovering)
