Australian dollar drifting

The Australian dollar has started the week with a whimper. In the European session, AUD/USD is trading at 0.7714, up 0.11% on the day.

With the global economy slowly finding its feet as Covid recedes, central bank policymakers are having to re-evaluate their ultra-accommodative policies. In Australia, the economy has recovered more quickly than expected, and the housing market remains red-hot. The RBA is projecting that GDP in 2021 will expand by 4.75% in 2021 and 3.5% in 2022.

Despite this rosy forecast for the economy, the general consensus is that the RBA will not hike rates before Q4 of 2022, and perhaps later. The key numbers to circle when it comes to a rate move are unemployment and inflation. Currently, both are lower than what the RBA would like to see. RBA Governor Philip Lowe is on record saying that he wants to see unemployment below 5 percent, lower than the current level of 5.5%. As for inflation, CPI in Q4 came in at 1.1% y/y, well below the RBA’s inflation target of 2-3%.

Markets eye FOMC decision

In the US, the Fed has insisted that higher inflation is transitory. With US Core CPI at 30-year highs, investors aren’t convinced that the Fed won’t tighten policy. We’ll hear from the Fed on Wednesday, as it holds a policy meeting. Investors will be combing through the rate statement and the follow-up press conference for any signals that the Fed is shifting away from its stance on inflation. If there are any hints that a tighter policy is in the cards, the US dollar could post strong gains.

Ahead of the FOMC meeting, the US releases retail sales and PPI data, so investors will have plenty to digest this week.

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AUD/USD Technical

• There are resistance lines at 0.7757 and 0.7810
• On the downside, 0.7669 is providing support. Below, there is support at 0.7634

For a look at all of today’s economic events, check out our economic calendar. www.marketpulse.com/economic-event

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