Kashkari Predicts Rate Hikes, Boosts USD Strength
Neel Kashkari’s recent remarks have reinforced the strength of the US dollar. Regarding the possibility of future rate hikes, Kashkari mentioned that nobody has completely ruled out the option of increasing rates. His lack of confidence in the disinflationary process suggests a limited expectation for rate cuts, projecting only two in the foreseeable future. This stance has bolstered the US dollar, impacting the AUD/USD pair.
Consumer Confidence Rises to 102.0, Lifts USD
Adding to the economic narrative, the Conference Board’s Consumer Confidence Index has increased from 97.5 to 102.0, indicating robust consumer spending in the second half of 2024. This upbeat consumer sentiment further supports the US dollar’s strength. Concurrently, US Treasury bond yields have climbed, with the 10-year note coupon rising seven basis points to 4.548%. This has exerted additional pressure on the AUD/USD exchange rate.
Anticipation for Australian CPI Data: Expected at 3.4%
The upcoming Consumer Price Index (CPI) data for April is highly anticipated on the Australian front. Analysts estimate a slight decline in CPI from 3.5% year-on-year to 3.4%. It could boost the AUD/USD pair if the figures exceed expectations. The Westpac Leading Index, another critical economic indicator, will also be closely watched for its potential influence on the Australian dollar.
From a technical perspective, the AUD/USD pair exhibits an upward bias despite a recent pullback. The formation of a ‘gravestone doji’ on the chart suggests a potential downside, but the Relative Strength Index (RSI) remains in bullish territory. A correction to 0.6592 could precede a rally towards the year-to-date high of 0.6839.
Australian Inflation Hits 3.6%, RBA Policy Implications
Australia’s inflation landscape presents mixed signals, with disinflationary forces appearing to stall. Recent data shows that the annual rates for both headline and underlying inflation are flat to higher, complicating the outlook for the Reserve Bank of Australia’s (RBA) monetary policy.
Consumer prices rose by 3.6% in the year to April, slightly above the expected 3.4% and marginally higher than March’s 3.5%. Electricity rebates have significantly suppressed price increases, with a 4.2% rise recorded instead of the anticipated 13.9%. When excluding volatile items such as fresh food, fuel, and holiday travel, prices increased by 4.1%, unchanged from March. The trimmed mean underlying inflation rate also increased from 4% to 4.1%, significantly above the RBA’s 2-3% target range.
RBA’s Next Move: Rate Hike Likely Due to 4.1% Core Inflation
These inflation figures weaken the case for the RBA to cut interest rates. Indeed, the central bank’s next move might be a hike, given the persistent inflationary pressures. The RBA has a limited tolerance for inflation exceeding its target beyond 2026, suggesting a growing likelihood of rate increases if inflation remains elevated.
3-Year Bond Yields Surge to 4.087% on Inflation Data
In response to the latest inflation data, Australian bond yields have surged. The yield on three-year government bonds reached a four-week high of 4.087%, marking a significant rebound of 26.8 basis points from recent lows. This upward movement reflects the market’s reassessment of the timing of potential rate cuts, now anticipated to be delayed until the second half of 2025.
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