Australian Dollar Extends Gains as PPI Surges

The Australian dollar has posted four straight winning sessions this week and is in positive territory on Friday. In the European session, AUD/USD is trading at 0.6534, up 0.24%. The Aussie has powered higher this week, climbing 1.82%.

Australia’s PPI blows past estimate

Australia’s Producer Prices index jumped 4.3% y/y in the first quarter, up from 4.1% in Q4 2023 and crushing the market estimate of 2.6%. Quarterly, PPI was unchanged at 0.6%, above the market estimate of 0.6%.

The unexpectedly strong PPI release follows the first-quarter CPI report, in which annual CPI dropped in April from 4.1% to 3.6% but was higher than the market estimate of 3.4%. Producers are likely to pass on their higher costs to consumers, which will boost consumer inflation.

The Australian dollar has posted sharp gains this week thanks to the hotter-than-expected CPI and PPI releases. The Reserve Bank of Australia could respond by prolonging its “higher for longer” stance, which would likely dampen consumer spending. We could even see talk of an RBA rate hike, as policy makers remain concerned about a rebound in inflation. The battle with inflation isn’t over, as the final stretch to the 2% target is proving to be difficult, as the Federal Reserve experience has shown.

The week wraps up with the US Core PCE Price Index, which is the Federal Reserve’s preferred inflation gauge. The index is expected to ease to 2.6% y/y in April, down from 2.8% in May. On a monthly basis, the index is expected to remain unchanged at 0.3%. Consumer inflation has been rising in the US, forcing the Fed to delay plans to cut lower rates.

AUD/USD Technical

• AUD/USD is putting pressure on resistance at 0.6555.
• Above, there is pressure at 0.6618.
• 0.6487 and 0.6424 are the next support levels