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Abstract: Australia's inflation fell from a 33-year high in the first quarter as the cost of living rose at its slowest pace in more than a year; At the same time, core inflation was lower than expected, suggesting that the pressure on the RBA to raise interest rates again was easing.

Fundamentals

The AUDUSD extended the previous day's pressure and came under some selling pressure on Wednesday for the second consecutive trading day. The AUDUSD maintained its quoted tone during the European session and is currently near the threshold of 0.6600 or its lowest level since mid-March.

The AUD weakened across the board after the Australian Bureau of Statistics reported that headline CPI fell from 1.9% to 1.4% in the first quarter, the smallest increase since the end of 2021.

Data released today by the Australian Bureau of Statistics showed that the quarterly CPI rose by 1.4% in the first quarter, slightly higher than the market's expected 1.3%. The annual growth rate slowed to 7.0% from 7.8%, again higher than the expected 6.9%. In March alone, CPI rose 6.3% from a year earlier, down from 6.8% in February.

A closely watched core inflation measure, the revised average, rose 1.2% in the March quarter, pushing annual inflation down to 6.6%, below expectations of 6.7%.

The key conclusion to be drawn from these positive data is that they appear to reinforce the RBA's expectation of another pause in interest rate hikes at its May 2 meeting. The likelihood of a pause has risen from 83% before the inflation report to 100% today. It is certain that inflation has peaked, although the cautious RBA is unlikely to use the word "p" at the moment.

Meanwhile, it is too early to declare a complete victory in the fight against inflation, with headline inflation and core interest rates still more than three times the RBA's 2-3% target range. Although the market is confident of another pause in interest rate hikes, the market believes that the RBA is still worried that if the policy is not tightened further, an excessively high core interest rate may fuel a price-wage spiral.

As the banking crisis returned to the headlines, the AUDUSD remained under pressure.

Shares in the First Republic Bank fell 50% after its earnings report showed deposits plunged 40% in the first quarter. As the future existence of the First Republic Bank is threatened, the risk mood has dropped. If the panic in the banking sector worsens, the USD may rise and continue to push down the AUD.

Technical Analysis

After peaking at 0.7157 in early February, the AUDUSD has been falling in a downward-sloping channel. Although the AUDUSD has successfully broken through this bearish pattern, there has been no direction since then. Bears have recently completed the death cross between their 50-day and 200-day SMAs, triggering continued bearish pressure.

Short-term oscillators continue to tilt downward. The RSI is below its 50 neutral range, while the MACD diverges below the 0-axis and there is no convergence signal, which means that the downward space continues.

Nevertheless, we believe that short positions may have a short break after they reach point D.

If prices move upwards, the recent resistance level of 0.6746 is very close to the 200-day SMA, which may be the first hurdle for bulls to overcome. After breaking this range, the AUDUSD could rise to an April high of 0.6805 before testing 0.6920. If it fails to stop here, the price may encounter strong resistance at 0.7030.

Or, if bears try to keep prices low, 06550 could be the first line of defense. Below that bottom, prices could challenge last November's low of 0.6360 before turning to 0.6250. A break below the latter could lay the foundation for the bottom 0.6169 in 2022.

Overall, the AUDUSD seems to continue to maintain a neutral downward tone, and the technical indicators failed to provide a bullish signal. To regain confidence, bulls need to reverse the signal of the death cross divergence in their 50-day and 200-day SMAs. However, judging from the logic of the trading game, the stop-loss orders are imminent (triggering a price reversal after the stop-loss) and this is also the last attempt before the price slides to the bottom. It is recommended to buy at the lows.

Trading Recommendations

Trading direction: Long

Entry price: 0.6560

Target price: 0.6835

Stop loss: 0.6350

Deadline: 2022-05-10 23:55:00

Support: 0.6567, 0.6427, 0.6386

Resistance: 0.6620, 0.6705, 0.6793