Forex Market: AUD/USD edges lower, greenback rebounds from three-week lows ahead of key CPI inflation report

AUD/USD edged lower on Tuesday, as the US Dollar rebounded from a nearly three-week low against a basket of six major peers on bets US CPI inflation may pick up considerably in March, which would drive bond yields higher.

The Aussie reacted in a rather muted manner to stronger-than-expected growth in Chinese imports in March, a positive factor for Australia since China is its most important export market. China’s total imports soared at an annual rate of 38.1% in March, while its total exports grew at an annual rate of 30.6%.

Meanwhile, a key business survey by NAB revealed a drop in Australia’s business confidence index by 3 points in March, though the gauge remained well above its long-term average. Regardless of a generally weaker sentiment across all industries, business conditions were reported at their strongest level on record last month, driven by gains in sales, profitability and employment.

Demand for Australian government bonds seemed to have remained strong, as a syndicated sale of AUD 14 billion in new 2032 bonds attracted bids worth AUD 48 billion. 10-year Australian bond yields stood at 1.75% on Tuesday, but off last week’s high of 1.83%.

As of 8:35 GMT on Tuesday AUD/USD was edging down 0.10% to trade at 0.7615, while moving within a daily range of 0.7595-0.7631. Last Friday the pair slipped as low as 0.7588, which has been its weakest level since April 1st (0.7532). The major currency pair has gained 0.26% so far in April, following a 1.45% drop in March, the biggest loss since October 2020.

AUD/USD has been moving within a relatively tight range over the past three weeks and a break below April 1st low may open the door for a move down to December 23rd 2020 low of 0.7516.

In terms of economic calendar, today market players will be paying attention to the March report on US consumer price inflation due out at 12:30 GMT.

Additionally, several Federal Reserve officials are scheduled to make speeches.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -10.2 basis points (-0.102%) as of 8:15 GMT on Tuesday, down from -9.2 basis points on April 12th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7618
R1 – 0.7640
R2 – 0.7658
R3 – 0.7681
R4 – 0.7704

S1 – 0.7600
S2 – 0.7577
S3 – 0.7559
S4 – 0.7541

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