Australian Dollar: Hawkish RBA tone versus tech risk – ING

ING’s Francesco Pesole says AUD/USD remains under pressure from the tech-led equity sell-off, given the Australian Dollar’s high correlation with semiconductor stocks. Domestically, hotter core inflation should keep Reserve Bank of Australia communication hawkish, even without further hikes. Pesole stays optimistic on a move well above 0.70 in H2, though he flags near-term downside toward key supports.

Core CPI supports but risks stay

"AUD/USD is taking a breather just above 0.690 this morning after plunging on the tech sell-off. AUD has the highest correlation in G10 with the Philadelphia Semiconductor index, meaning downside risks remain elevated in the near term if AI valuation concerns persist."

"Domestically, the picture for AUD remains strong, but is hardly relevant for near-term moves, considering the challenging external environment. Overnight, Australian headline inflation unexpectedly slowed from 4.2% to 4.0%, but the trimmed mean (the main core measure) accelerated from 3.4% to 3.6%."

"This second measure is what matters the most for the Reserve Bank of Australia. While we don’t expect another hike from the bank, this print should encourage a still hawkish tone in upcoming communication."

"We remain optimistic on an AUD/USD recovery well above 0.70 in the second half of the year on the back of strong AUD fundamentals and our dovish Fed call. But in the short term, downside risks persist. The pair is close to key supports at 0.690 and the 0.683 March low."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)