AUD/USD knocked lower for a second day heading into key inflation report

The Nasdaq pared Monday’s losses on caused by the industry-disruptive entrance by DeepSeek’s AI models. Risk began to recover during Tuesday’s Asian session after President Trump effectively applauded the development, labelling it a “wake-up-call” for the US tech industry, adding “I think it’s a good thing for us”.

While Nvidia’s stock price rose 7.8%, it was a far cry from the -17.5% sustained the day prior. They don’t report their earnings for another three weeks, but it could be argued they are already obsolete given the change in dynamics of AI industry the past 48 hours. Regardless, I do not expect to see an all-time high again for quite some time, if at all.

Nasdaq 100 futures were up 1.7% but beneath Monday’s open, S&P 500 futures are back above 6100 and near Monday’s open, whereas Dow futures rose for a second day to a 6-week high and close back above 45k.

The US dollar snapped a 3-day losing streak following another batch of tariff threats from President Trump. Imported computer chips, pharmaceuticals and steel are now vulnerable to import taxes, in an attempt to get US producing more on home soil.

Japan’s PM has nominated supporter of policy normalisation to join the BOJ board. Junko Koeda is set to join in March, which helps keep the door open for at least one more 25bp hike this year.

Economic events in focus (AEDT)

While the BOJ delivered a hawkish hike last week, we can ignore today’s minutes of the meeting as it is for the December meeting – which likely renders them pretty useless.

I highlighted the importance of today’s Q4 inflation figures from Australia for the RBA’s next meeting. In a nutshell, AUD/USD bears will likely want to see a trimmed mean print of 3.2% y/y or less to justify market pricing a cut, in order to avoid a short-covering bounce. And given the average post-pandemic q/q print is just a shave below 0.9%, we may need to see it drop to 0.7% or less to justify a cut in my view.

I doubt we’ll glean too much from today’s Fed meeting given Trump has only just officially arrived on the scene. Markets are barely pricing in a single cut, and I doubt they have the appetite to signal one today.

The Bank of Canada are expected to cut their interest rates by 25bp to 3% and provide their analysis of the impact of potential trade tariffs. In doing so, it could reveal the BOC’s appetite for further cuts, although that hinges around whether Trump implements the said tariffs by Sunday.

• 00:00 – Chinese New Year
• 10:50 – BOJ monetary policy meeting minutes
• 11:30 – AU quarterly CPI
• 16:00 – JP household confidence
• 18:00 – GfK German Consumer Climate
• 01:15 – BOE Governor Bailey speaks
• 01:45 – BOC interest rate decision (-25bp cut expected)
• 05:00 – Fed interest rate decision (no change expected)
• 05:30 – FOMC press conference

AUD/USD technical analysis:

The 1-day implied volatility band for AUD/USD is suspiciously small, considering the importance of today’s inflation figures from Australia and the fact we also have an incoming Fed meeting. They do however land near the weekly pivot point and S1 levels, so perhaps they’ll provide interim levels of support and resistance if volatility does heat up. But with markets positioned for an RBA cut, a slightly hot CPI print could send it higher. And as AUD/USD has already retraced for two days, perhaps dips above 0.6220 could work well for bulls over the near term.

For today, my bias is to seek dips towards the 0.6223 – 0.6231 support zone and for a leg higher towards the 0.6272 – 0.6278 resistance zone. But for AUD/USD to put in a decent bounce, USD/CNH needs to top out.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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