Australian Dollar Forecast: AUD/USD Eyes Inflation, Risk Trends

AUD/USD price action has drifted broadly sideways over the last month or so. The Australian Dollar looks like it has started to perk up a bit more recently, however, as Aussie bulls attempt to regain lost ground and capitalize on US Dollar weakness. This may follow an improving outlook for the Australian Dollar on account of the latest flash PMI data, which showed an acceleration in private sector growth to the strongest reading on record. Australia’s PMI report also noted that ongoing supply chain disruptions continued to exert upward pressure on inflation, adding that the data showed the “steepest increases in both input costs and selling charges since inception of the PMI survey.”

This brings to focus the upcoming release of Australian inflation data scheduled to cross-market wires next Wednesday, 28 April at 01:30 GMT. According to the DailyFX Economic Calendar, the consensus forecast for headline inflation stands at 1.4% year-over-year, which would reflect a notable rise from 0.9% reported last. A better-than-expected inflation print likely stands to send AUD/USD price action snapping higher whereas a disappointing figure could spark a bearish reaction by the Australian Dollar.

AUD/USD PRICE CHART WITH VIX INDEX OVERLAID: WEEKLY TIME FRAME (NOVEMBER 2018 TO APRIL 2021)

AUDUSD Price Chart with VIX Index Overlaid Australian Dollar Forecast

Chart by @RichDvorakFX created using TradingView

In addition to Australia's inflation data, the Aussie might respond to China’s manufacturing PMI report also on tap for release next week. The ebb and flow of broader risk trends also has the potential to weigh on AUD/USD price action in the week ahead. Trader risk appetite seems to be holding up quite well, which in turn, could help keep the Australian Dollar broadly supported.

Sentiment-linked AUD/USD tends to hold a strong inverse relationship with the S&P 500-derived VIX Index as highlighted on the chart above. Though the correlation between AUD/USD and the VIX has turned less negative over recent weeks, it is likely that the relationship returns to its strong inverse nature, which could boost the Australian Dollar so long as the VIX ‘fear-gauge’ continues to hang around pandemic lows.

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