AUD struggles continue as risk aversion mounts and USD surges

Daily Currency Update

The Australian dollar faced sustained downward pressure through trade on Tuesday, unable to hold onto a brief push back above 0.72 US cents amid mounting risk aversion and a stronger US dollar. Concerns surrounding the global growth outlook coupled with fears that sustained supply pressures will continue to drive inflation higher forced investors toward haven assets. Rising COVID-19 case numbers in Beijing have sparked fears China’s capital will soon be thrust into strict lockdowns mirroring those in Shanghai, exacerbating supply constraints and Chinese economic growth prospects. Investors continue to pare bets for China’s recovery driving key commodity prices lower despite commitments from Chinese officials around future infrastructure investments. Having touched intraday highs at 0.7230 the AUD fell steadily through the early hours of the European session compounding losses overnight and touching intraday lows at 0.7120.

Our attentions today turn to quarter one CPI data. Today’s print is expected to show a significant uptick in consumer prices and the cost of living for all Australians with prices across key non-discretionary items such as groceries and petrol rising rapidly through the last 3 months. Inclement weather and global supply chain issues have prompted a rapid rise in the cost of goods with markets estimating headline CPI to print above 4% while core CPI, a read that removes items highly sensitive to price fluctuations, is tipped to extend beyond the upper bounds of the RBA’s target range at 2-3%. With inflation pressures expected to grow through Q2 a high read today could prompt investors to bring forward expectations for an RBA rate hike from June to May.