By Kenny Fisher (Marketpulse)
The Australian dollar has reversed directions on Thursday and posted strong gains. In the North American session, AUD/USD is trading at 0.7776, up 0.64% on the day. In economic news, Australia releases Retail Sales for March, with expectations for a slight gain of 0.5%.
Inflation Expectations rise
The Australian economy has been heating up, and this has raised expectations that inflationary pressures are increasing. Australia Consumer Inflation Expectations rose to 3.5% in April, up from 3.2% and just shy of the consensus of 3.6%. This is a closely watched inflation indicator, as inflation expectations can translate into actual inflation, so the strong reading could be a signal that inflation is moving higher. This has helped lift the Australian dollar today, as higher inflation would mean that the RBA may have to consider tapering its QE programme.
Australian job numbers for April were mixed. The unemployment rate dipped to 5.5%, down from 5.6% and its lowest level since 2020. However, the economy lost 30,600 jobs, against the consensus of a rise of 15,000.
FOMC minutes open door to taper debate
The FOMC minutes from the April policy meeting surprised the markets on Wednesday. The minutes stated that Fed policymakers were open to begin considering a taper of bond purchases over the upcoming meetings. This development sent equities lower and pushed the US dollar higher, on fears that the Fed could begin to tighten policy as early as next month. The admission that the Fed is open to tapering was in marked contrast to the constant message that Fed members have been sending out at practically every public appearance, with a reiteration that the Fed had no plans to taper its massive QE programme for the foreseeable future. Now that the FOMC has opened the door to a taper talk, Fed Chair Powell will be under close scrutiny for any comments with regard to tapering.