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    AUDUSD is looking shaky ahead of China’s inflation numbers

    US dollar strength dominated the majors overnight, sending AUDUSD back below 0.7700. The pair has since recovered some of these losses but it’s looking shaky ahead of the release of China’s inflation numbers for March. There is a clear negative divergence between price and RSI on an hourly chart which may highlight some underlying weakness in price. If the pair does falter it may break through the base of a short-term upward wedge formation, which would be another bearish indicator. On the upside, we are keeping an eye on trend line resistance (see chart).

    China’s inflation numbers are due to be released at 0130GMT and the market is looking for a 1.3% y/y increase in the Consumer Price Index. Factory gate prices are expected to fall 4.8% y/y for the second month in a row. While China’s economic data is somewhat unreliable at this time of year, it can still have a material impact on commodity currencies like the aussie, especially in such volatile market conditions.

    Chinese economic data has a curious relationship with the Australia dollar; a weaker than expected economic number, like inflation figures, can send the aussie either higher or lower, depending on the mood of the market. On occasion, the AUD will respond positively if the market thinks the softer than expected numbers will result in further stimulus. However, with the market is already expecting further stimulus and there’s no real concern about over-stimulating inflation through monetary policy loosening, at least not yet, thus a softer than expected set of numbers today may weigh on the commodity currency. A stronger set of numbers may see AUDUSD retest a resistance zone around 0.7740/50.



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