AUSTRALIAN DOLLAR, AUD/USD, EXPECTATIONS FOR US INFLATION, USD/JPY – ASIA PACIFIC MARKET OPEN

• Following the turbulence on Wall Street on Friday, the Australian Dollar is in danger.

• Higher inflation forecasts in the United States pave the way for a more hawkish Federal Reserve.

• Light economic schedule in the Asia-Pacific region; keep an eye out for USD/JPY intervention.

A Briefing on the Asia-Pacific Market

As a result of the volatility that was seen on Wall Street on Friday, investors in the Asia-Pacific region may be anticipating a negative beginning to the new trading week. While the S&P 500 index declined by 2.29 percent, the tech-heavy Nasdaq 100 fell by more than 3 percent. The risk-averse market drove down the sentiment-sensitive Australian Dollar, which resulted in a 1.62% decline in AUD/USD. The same thing happened to the New Zealand Dollar, which was acting similarly.

When looking at the figure below, investors first saw some reason for optimism even though US retail sales were worse than predicted. However, a few hours later, when data from the University of Michigan (UofM) reached the lines, things swiftly turned different for the worst. The 1-year inflation forecasts of consumers increased to 5.1% from the previously predicted 4.6%. That is probably going to provide a challenge for the Federal Reserve.

The Consumer Price Index (CPI) numbers for the United States came in higher than expected on Thursday, the day before. This analysis, in conjunction with the data from the University of Michigan, demonstrates the danger of inflation expectations being untethered from the Fed’s long-term target. Because of this, there is a possibility of a self-perpetuating cycle in which consumers do not feel that inflation would decline, leading them to act in their self-interest by attempting to preserve current earnings or search for positions that pay more.

This also has repercussions for companies, including an increase in the expenses of doing business and, most likely, an increase in prices. When looking at the yield on the 2-year Treasury note, one can see that the rate increased to above 4.5 percent due to traders’ pricing in a more hawkish Federal Reserve that will need to strengthen its battle against inflation. The value of the US Dollar rose. Crude oil prices, which are directly tied to growth, fell as the prospects for global expansion became less optimistic. Gold fell in value.

The Asia-Pacific economic calendar is relatively quiet on Monday, emphasizing traders on the broader market mood. There is a danger that the ASX 200 in Australia and the Nikkei 225 in Japan may follow in the footsteps of Wall Street. Risk-sensitive AUD/USD is susceptible. Watch the USD/JPY exchange rate very carefully. Despite the government’s attempts some weeks ago to intervene, the pair reached its most significant level in the last 32 years. The additional activity would most likely result in price movement for the yen.

Volatility During Friday’s Wall Street Trading Session

Technical Analysis of the Australian Dollar

The AUD/USD exchange rate had its lowest close since April 2020, revealing the 0.5980 level as the lowest point during that month. In addition, prices closed lower than the 61.8% Fibonacci extension mark, which was set at 0.6206, although this is not yet confirmed. If more losses occur, attention will shift to the 78.6% level located at 0.6113. A positive RSI divergence indicates that selling pressure is beginning to ease. A move in the upward direction shifts attention to the 20-day simple moving average (SMA).

Daily Chart of the AUD/USD Pair