BNY’s Head of Markets Macro Strategy Bob Savage notes that Australian data and policy are central for the Australian Dollar (AUD), with February CPI seen as critical to validate current rate-hike pricing and a constructive AUD view. Following the Reserve Bank of Australia’s (RBA) 25 bp hike to 4.1% and emphasis on upside inflation risks, Savage argues that incoming inflation data will be key for sustaining the bullish AUD narrative.

Inflation data to test AUD bulls

"In Australia, the February monthly CPI indicator will be critical in validating current rate hike expectations and the bullish AUD outlook, after the Reserve Bank of Australia (RBA) raised rates by 25bp last week to 4.1% with an emphasis on upside inflation risks."

"Activity indicators – including March PMIs for Australia, Japan and India, and South Korea’s March Composite BSI – will provide insight into regional manufacturing momentum amid the Iran conflict."

"Overall, inflation dynamics and business sentiment remain the key themes."

"Extreme market volatility and geopolitical uncertainty remain the primary drivers of APAC risk, and any further reduction in risk appetite would amplify cross-asset moves."

"... central banks and governments are expected to shift further into defensive mode: intensifying FX intervention to smooth volatility and deploying macroprudential measures to cushion living costs."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)