AUD/USD TUMBLES TO NEAR 0.6700 ON SUBDUED AUSTRALIAN GDP AND SOFT INFLATION DATA

AUD/USD has dropped sharply to near 0.6700 as a sheer decline in Australian monthly CPI and subdued GDP has trimmed hawkish RBA bets.

Australian monthly CPI has dropped significantly to 7.4% from the expectations of 8.0% and the prior release of 8.4%.

The Australian GDP (Q4) has landed at 0.5% vs. the 0.6% released in Q3.

The AUD/USD pair has slipped sharply to near 0.6700 as the Australian Bureau of Statistics has reported mixed Gross Domestic Product (GDP) (Q4) data. The GDP data has landed at 0.5% in Q4, lower than the consensus of 0.8% and Q3 figure of 0.6%. On an annualized basis, the GDP has remained in line with expectations at 2.7%.

The monthly Consumer Price Index (CPI) (Jan) has dropped significantly to 7.4% from the expectations of 8.0% and the prior release of 8.4%. A mammoth decline in the inflation data is going to provide a big relief to Reserve Bank of Australia (RBA) policymakers.

RBA Governor Philip Lowe might continue its policy-tightening spell as the road to price stability is far from over.

A recent survey from Bloomberg claims that the Australian economy will fall into a recession while the United States economy is expected to dodge the recession situation. It is extremely difficult to predict a terminal rate for a central bank whose economy has not shown any evidence of inflation softening yet. Therefore, the chances of an Australian recession are extremely higher as the roadmap for achieving price stability in the Australian economy is full of struggles.

Going forward, the release of the Caixin Manufacturing PMI data will keep the Australian Dollar volatile. According to the consensus, IHS Markit will report an improvement in the Caixin Manufacturing PMI at 50.2, higher than the prior release of 49.2. The Chinese economy is on the path of a quick recovery after the rollback of lockdown curbs, therefore, a decent performance is anticipated by the market participants.

It is worth noting that Australia is the leading trading partner of China and upbeat PMI figures will strengthen the Australian Dollar ahead.

Meanwhile, the risk aversion theme is getting strengthened further amid bearish cues from the S&P500 futures. The 500-US stocks basket futures have ramped up their losses in the Asian session after a weak Tuesday as fears of more rates by the Federal Reserve (Fed) are deepening worries of a slowdown ahead.  The US Dollar Index (DXY) has sensed a minor loss in the upside momentum near 104.60, however, the upside bias has not been ruled out yet.