Australian dollar extends gains despite soft confidence data

The Australian dollar is in positive territory on Tuesday. In the European session, AUD/USD is trading at 0.6620, up 0.25%.

Consumer confidence sags

Australian consumers have been pessimistic about the economy and their mood soured even more in April. The Westpac consumer confidence index fell 2.4% to 82.4, well below the 100 line which separates pessimism from optimism. This missed the market estimate of a 0.5% gain. Consumers continue to feel squeezed by stubborn inflation and high interest rates and are not confident that the Reserve Bank of Australia will lower rates anytime soon.

The business sector isn’t showing much confidence either, as the National Australia Bank business confidence index rose from 0 to +1 index point in March, which is below average. This was better than expected, as the markets expected a 3-point decline. The silver lining was business conditions, which dropped 1 point to +9 index points in March, which still remains above average.

Australia’s economy is struggling, but the RBA is in no rush to lower rates as inflation has been persistently high and the current rate of 3.4% is above the target band of 2-3%. Core inflation remains stickier, as the trimmed mean rose in February from 3.8% to 3.9%.

RBA policy makers are concerned that inflation could rise if they lower rates too soon. As well, a rate cut would have more impact on the economy if the Federal Reserve were to lower rates first. The RBA meets next in May but the markets aren’t expecting an initial rate cut before September at the earliest.

AUD/USD Technical

• AUD/USD tested resistance at 0.6606 earlier. Above, there is resistance at 0.6632
• 0.6577 and 0.6551 are providing support

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