Australian dollar hits 4-month high

The Australian dollar is lower on Friday. AUD/USD is currently trading at 0.6658 in the European session, down 0.31% on the day.

The Aussie touched a high of 0.6714 on Thursday, its highest level since January 10th. This followed a massive 1% surge on Wednesday after the US inflation report indicated that April CPI ticked lower, raising expectations of a Federal Reserve rate cut.

Australian dollar after mixed Chinese data

Chinese data was a mix on Friday. Industrial production expanded by 6.7% y/y in April, compared to 4.5% in March and well above the market estimate of 5.5%. Manufacturing has shown stronger activity as the government has provided stimulus to the economy which has had a bumpy recovery from Covid.

Chinese consumers have cut spending due to the uncertain economic conditions and April retail sales was a major disappointment, dropping to 2.3% y/y. This was down from 3.1% in March and short of the market consensus of 3.8%. Retail sales remain in positive territory but the April release was the lowest in15 months and that is sure to get the attention of policy makers. China is Australia’s largest trading partner and a downtrend in domestic demand in China would spell trouble for the Australian export sector and could weigh on the Australian dollar.

The Reserve Bank of Australia meets next on June 18th. At last week’s meeting, there was no surprise as the RBA held the cash rate at 4.35% for a fourth straight time. The central bank discussed the possibility of a rate hike at the meeting, which was not the case at the March meeting. This indicates that that policy makers are concerned that the path to the 2% inflation target will be bumpy and are hesitant to start lowering rates until they see evidence of sustainable price stability.

AUD/USD Technical

• AUD/USD tested support at 0.6645 earlier. Below, there is support at 0.6602
• 0.6668 and 0.6731 are the next resistance lines

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