Overnight, Australian CPI y/y showed signs of moderation, printing at 7.4%, lower than the expected 8.1% and the previous 8.4%. GDP was also softer at 0.5% q/q - 0.8% q/q was expected. After the release, the spread between the AU and US 2-year notes declined (red rectangle). This suggests that the RBA is less hawkish than the Fed. Neverthelss, markets still expects the RBA to lift rates next week, even if the economy is slowing.
The AUDUSD broke down from an ascending wedge in February. The AU-US 2-year spread was resilient and did not follow suit. It continued to trade in a potential flag pattern. A flag is a continuation pattern. The bias seems to be for a breakdown, however, the weak data overnight may provide that catalyst, almost three weeks after the AUDUSD breakdown.
This may be a case where the currency market is leading the fixed income market, but the two are aligning once again. More follow through is needed from bond market participants for confirmation.
Senior Market Specialist
Russell Shor joined FXCM in October 2017 as a Senior Market Specialist. He is a certified FMVA® and has an Honours Degree in Economics from the University of South Africa. Russell is a full member of the Society of Technical Analysts in the United Kingdom. With over 20 years of financial markets experience, his analysis is of a high standard and quality.