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Forex Market: AUD/USD rebounds from one-week lows on higher commodity prices, CBA expects an RBA rate hike in June

AUD/USD rebounded from a one-week low on Tuesday, supported by higher prices for Australia’s mix of commodities – from liquefied natural gas to iron ore.

Meanwhile, the RBA policy makers will remain patient before hiking interest rates, the minutes of the central bank’s recent policy meeting showed.

Still, Aussie gains were capped, as market players were closely watching the developments surrounding the Ukraine situation.

The minutes of the Reserve Bank of Australia’s February meeting revealed that it was still too soon to conclude that Australia’s inflation rate was sustainably within the target range.

“There were uncertainties about how persistent the pick-up in inflation would be as supply-side problems were resolved. Wages growth also remained modest and it was likely to be some time before aggregate wages growth would be at a rate consistent with inflation being sustainably at target,” the RBA Minutes stated.

Gareth Aird, CBA’s head of Australian economics, expects an RBA rate hike to occur as soon as June, from August, as forecast previously.

“We are very comfortable with our expectation that Q1 underlying inflation data will be a lot stronger than the RBA’s forecast. Input costs have risen very swiftly and this is feeding through to faster growth in output prices,” CBA’s Aird said.

He forecasts Australia’s core CPI will rise 1.2% in Q1, while the annual rate of increase will probably be 3.5%.

The official CPI report for the first quarter is scheduled to be released on April 27th.

As of 10:02 GMT on Tuesday AUD/USD was edging up 0.27% to trade at 0.7144. Yesterday the major Forex pair slipped as low as 0.7086, which has been its weakest level since February 7th (0.7065).

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 -34.69 basis points (-0.3469%) as of 9:15 GMT on Tuesday, up from -39.6 basis points on February 14th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7121
R1 – 0.7155
R2 – 0.7185
R3 – 0.7219
R4 – 0.7254

S1 – 0.7091
S2 – 0.7056
S3 – 0.7026
S4 – 0.6997

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