Aussie Set for Rises

After getting many blows, the Aussie finds comfort in rising inflation which paves the path for another rate hike. This report saved AUD/USD from losing an important support line. After the bounce, the road is north.

Australian quarterly CPI showed a rise of 0.5% in Q4. This exceeded expectations for a 0.4% rise, although being less than last month’s 1% rise. After seeing a negative PPI at the beginning of the week, there were fears that also CPI will disappoint.

This release comes at an important timing – a week before the rate decision. After the previous rate hike, the third in a row, there were doubts about another one. With an interest rate of 3.75%, the one month break from rate decisions could turn into a break from rate hikes.

Now, after this was cleared, Glenn Stevens’ RBA will probably raise the bar to 4%. This article in Bloomberg shows that the chances are now higher for a rate hike.  Interest rates are very important for currencies, and these expectations boost the Aussie.

After dropping just below the important support line of 0.8950, to 0.8940, the Aussie enjoyed the CPI release to get back up, climbing to 0.9040. Renewed dollar strength is now pushing it back down to 0.8970, but the support line continues to hold.

When the dollar will release the grip over the markets, I believe we’ll see further rises of the Aussie. It’s currently better positioned than other currencies such as the Euro and the Pound. This depends mostly on relief from the risk aversion trading sentiment that is felt again in the markets.

More technical lines can be seen in the AUD/USD forecast.