Mt4.mt5 trading market - Australian dollar trend? Bearish!

The AUD rose as broad market risk appetite recovered; Investors seem to prefer the "soft landing" scenario of growth and inflation; This week focuses on the RBA policy decision and the US CPI inflation report.

Aud Australian dollar trend fundamental forecast: bearish

The Australian dollar rebounded strongly in the second half of May, recovering more than half of the decline in the previous month. The Aussie dollar's rise was accompanied by the recovery of broad risk appetite in the market, which provided strong support for this sentiment driven commodity currency.

The market was full of recession concerns for most of the second quarter. Economists lowered their growth expectations, the stock market fell, and the US dollar ushered in a carnival due to liquidity demand. Against this background, the Federal Reserve's interest rate hike bet slowed down, and the implied interest rate outlook for 2023 in the futures market fell by 63 basis points.

From mid May, the market began to rethink. Stable economic data - especially in cyclically sensitive emerging markets - seems to suggest that growth concerns may be overdone. The PMI (Purchasing Manager) activity survey report also shows its agreement with this view. In the nearly one-year slowdown trend, the current performance of this data has been consistent with the trend before the pandemic.

When the stock market plummeted, the easing of recession risk did not translate into the reconstruction of the Fed's expectation of raising interest rates. With the improvement of investor sentiment, the implied inflation expectation in the bond market continues to be anchored near the low level of nearly three months, which once fell sharply due to the deterioration of sentiment.

In short, the market seems to believe that the Fed's "furious" policy stance this year is expected to successfully control runaway price growth, allowing 2023 to usher in a breather, while successfully maintaining the growth slowdown within tolerable limits. In essence, traders began to accept the situation of "soft landing".

With the development of the situation, the US CPI (consumer price index) data to be released this week will be the top priority of attention. Excluding fluctuations, the annual core inflation rate of food and energy prices is expected to fall to 5.9%, or the lowest level since December. At the same time, the indicator of consumer confidence rebounded from the low level in recent 10 years.

Will RBA honor its expanding interest rate hike bet?

RBA (Bank of Australia) will announce the latest interest rate resolution on Tuesday (June 7), and local influencing factors will work together with macro themes. The market bet that RBA would raise interest rates by at least 25 basis points, and some people even called for a 40 basis point increase in interest rates and an increase in cash interest rates to 0.75%.

Even though the PMI data recorded the lowest growth rate in nearly four months, with the medium-term inflation expectation surging to the top of the 2022 range, the recent RBA interest rate path has become significantly steeper.

How policymakers measure these conflicting clues will be crucial. If RBA suggests that the primary task is to actively curb inflation, thus confirming the market benchmark view of the recent hawkish shift, the Australian dollar is likely to rise.

On the other hand, RBA may convey a more optimistic view. This is because of its careful consideration of the Fed's high-pressure plan this year - which has made the global borrowing costs rise with U.S. interest rates, and the Fed seems to continue to do so - along with the cooling of economic performance. Against this background, the Australian dollar may fall.