AUD/USD slides below the 0.7000 figure post-Aussie WPI data and dampened sentiment

• The Australian dollar is losing ground vs. the greenback, as the AUD/USD is down 0.46%.
• Australia’s WPI to put the RBA in doubt of hiking aggressively?
• Fed’s Powell commented that if inflation does not abate, they will move “more aggressively.”
• AUD/USD Price Forecast: Failure at 0.7051 sent the pair below the 0.7000 figure.

AUD/USD is giving back some of Tuesday’s gains, after reaching a daily high at around 0.7046, but fell on a lower than foreseen Australian Wage Price Index (WPI), which puts the Reserve Bank of Australia (RBA) in doubt about tightening monetary policy at a faster pace than other central banks in the world, like the Federal Reserve, in the US. At 0.6994, the AUD/USD extends its losses, also helped by dismal market sentiment.

Australia’s WPI to put the RBA in doubt of hiking aggressively?

During the Asian session, the Wage Price Index rose by 2.4% y/y, lower than the 2.5% estimated, while the quarterly reading grew 0.7%, also less than the 0.8% foreseen. Although both readings grew more than in the previous period, they are still trailing the high inflation rate in Australia, which was reported at 3.7%, the highest since 2009, with headline inflation reaching 5.1%.

RBA forecasts wage growth to gradually accelerate to 2.7% by June and 3% by the end of the year. However, the last reading will disappoint the central bank, which raised rates in May, expecting to hit a wage spiral, though the WPI report showed the opposite. Meanwhile, money market futures scaled back expectations of an RBA’s cash rate increase in June, dropping to 92% odds from a 100% of a 25-bps increase

Analysts at ANZ Bank scaled back its 40-bps forecast, attributed to WPI figures. They wrote in a note that “the RBA is likely to hike the cash rate another 25bp in June, rather than a larger 40 or 50bp hike. But there are still important data to come, with the April labour market release tomorrow and average earnings per hour in the National Accounts on 1 June.”

A “hawkish” Powell boosts the prospects of the greenback

Elsewhere, on Tuesday, the Federal Reserve Chair Jerome Powell said that “What we need to see is inflation coming down in a clear and convincing way, and we’re going to keep pushing until we see that.” If the central bank does not see clear evidence of abating inflation, Powell emphasized that “we’ll have to consider moving more aggressively.”

In the meantime, the US Dollar Index is trimming Tuesday’s losses and marches firmly, gaining 0.36%, sitting at 103.676, also a headwind for the AUD/USD. Contrarily, US Treasury yields are trading lower in the day, down seven and a half basis points, at 2.919%.

Before Wall Street opened, the US economic docket revealed Building Permits and additional housing data, which came mixed. Building Permits rose to 1.819 M, better than the 1.812 M expected. However,  Housing Starts grew at a slower pace, coming at 1.724 million, less than the 1.765 million estimated, beginning to show signs of the Federal Reserve tightening. Later in the day, Philadelphia’s Fed Patrick Harker would cross wires.

AUD/USD Price Forecast: Technical outlook

The AUD/USD Tuesday’s price action was attributed to an improved market mood, as China’s reported better handling of the coronavirus crisis. However, AUD/USD bull’s failure to reclaim 0.7051 left the major exposed to selling pressure, as AUD/USD bears entered the market on lower than expected WPI and sent the pair towards fresh daily lows below the 0.7000 figure.

With that said, the AUD/USD’s first support would be the January 28 swing low at 0.6967. Break below would expose 0.6900, followed by the YTD low at 0.6828.