AUD/USD falls below 0.66 on lower inflation, banking jitters

• AUD/USD drops to 6-week low
• Australian inflation falls in Q4
• First Republic shares slide by 50%

AUD/USD is trading at 0.6606, down 0.31%. Earlier, AUD/USD fell to a low of 0.6595, its lowest level since March 15^th.

Australian inflation heads south

Australia’s inflation levels have been falling and the downward trend continued in the first quarter. The headline figure slowed to 7.0%, down from 7.8% in Q4 and a notch above the market consensus of 6.9%. On a quarterly basis, headline CPI from 1.9% to 1.3%, versus the market consensus of 1.4%. The monthly CPI for March fell from 6.8% to 6.1%, below the estimate of 6.6%.

Core CPI, which is considered a more reliable gauge of inflation trends, headed lower and beat the estimates, falling from 6.9% to 6.6% y/y (7.2% est.). On a quarterly basis, core CPI dropped to 1.2%, down from 1.7% and below the estimate of 1.4%.

The key takeaway from these positive numbers is that they appear to have cemented another rate pause at the May 2^nd meeting. The odds of a pause have risen from 83% prior to the inflation report to 100% at present. It looks safe to say that inflation has peaked, although the cautious RBA is unlikely to use the “P” word just yet. At the same time, it is premature to declare victory in the inflation battle, with headline inflation and the core rate running more than three times the RBA’s target band of 2-3%. Despite the market’s confidence in another pause, some economists feel that the RBA remains concerned that the high core rate could fuel a price wage spiral if it doesn’t tighten further.

First Republic’s shares sink

AUD/USD is also under pressure as the banking crisis is back in the headlines. First Republic Bank shares fell by 50% after the Bank’s earnings report showed that deposits plunged by 40% in the first quarter. Risk sentiment has fallen as First Republic’s future very survival is at stake, and if banking jitters worsen, the US dollar could continue to climb higher.

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AUD/USD Technical

• AUD/USD tested resistance at 0.6620 earlier today. The next resistance line is 0.6714
• 0.6572 and 0.6459 are providing support

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