Australian Dollar rises after PPI accelerates, US Nonfarm Payrolls next

The Australian dollar has posted considerable gains on Friday. In the European session, AUD/USD is trading at 0.6417, up 0.55% on the day.

Australia's PPI rises but Retail Sales dip

Australia's Producer Price Index rose 0.9% in the first quarter, up from 0.8% in Q4 and edging above the market estimate of 0.8%. Annually, PPI remained at 3.7%, still the lowest level in three years.

Retail sales for March was a disappointment, with a gain of 0.3%. This followed a revised 0.8% in February and missed the market estimate of 0.4%. The weak report can partly be attributed to Cyclone Alfred, which caused damage of close to one billion dollars.

Retail sales were almost flat in the first quarter, reflecting consumer anxiety over the economy, as US tariffs have escalated global trade tensions.

Australia's core inflation rate dipped to 2.9% in the first quarter, the first time in three years that core CPI has been within the RBA's 1-3% target band. This is a significant milestone in the recovery and the fight against inflation.

The inflation report is good news for consumers and the markets have priced in a quarter-point cut from the Reserve Bank of Australia at the May 20 meeting. The National Australia Bank is more dovish and is projecting a jumbo half-point cut.

US Nonfarm Payrolls expected to fall sharply

With US inflation largely under control, the US labor market is under close scrutiny. The Federal Reserve could deliver a rate cut as early as June if employment numbers deteriorate. The May nonfarm payrolls report is expected to come in at just 130 thousand, following a surprisingly strong April release of 228 thousand. A surprise reading above or below the forecast could have a strong impact on the US dollar in the North American session.

Investors will also be monitoring wage growth, which is expected to inch higher to 3.9% y/y from 3.8%.

AUD/USD technical

• AUD/USD has pushed above resistance at 0.6392 and is testing resistance at 0.6419. Above, there is resistance at 0.6453.
• 0.6358 and 0.6331 are the next support levels.