Australian Dollar drops with ASX 200 amid firmer US Dollar

• Australian Dollar extends losses as US Dollar cheers stronger producer inflation data.
• Australia's S&P/ASX 200 Index tracks losses on Wall Street overnight.
• Reuters poll forecasts that the RBA could maintain its cash rate at 4.35% until September.

The Australian Dollar (AUD) extends its losses for the second successive day on Friday, reaching weekly lows. The AUD/USD pair depreciates as the US Dollar (USD) gains fresh momentum, driven by stronger-than-expected Producer Price Index (PPI) data from the United States (US). This data further complicates the outlook for when the Federal Reserve will begin to cut interest rates.

Australia’s S&P/ASX 200 Index tumbles to its lowest levels in three weeks amidst a widespread market selloff. Australian shares follow losses on Wall Street overnight, with major banking and iron ore mining shares leading the decline.

The Reserve Bank of Australia (RBA) maintains its stance of potentially raising rates further, with the RBA’s policy decision scheduled for next week. In the meantime, traders will likely keep an eye on the preliminary US Michigan Consumer Sentiment Index for March, due to be released on Friday.

Daily Digest Market Movers: Australian Dollar depreciates after stronger US PPI data

• Australia's NAB Business Confidence Index decreased to 0 in February, from the previous reading of 1. Business Conditions Index improved to 10 from the previous reading of 7 (revised from 6).
• According to a Reuters poll conducted ahead of the RBA meeting, analysts forecast that the central bank could maintain its official cash rate at 4.35% for a third consecutive meeting, with no changes expected until at least the end of September.
• RBA Governor Michele Bullock recently stated that inflation in Australia is primarily "homegrown" and "demand-driven," attributable to the strength of the labor market and increasing wage inflation. The RBA does not anticipate this phenomenon occurring until 2026.
• Former RBA Governor Philip Lowe stated on Wednesday that there is a two-way risk on interest rates, supporting current RBA Governor Michelle Bullock's warning that interest rates might still need to increase.
• Chinese Foreign Minister Wang Yi is scheduled to meet with Australia's Foreign Affairs Minister Penny Wong in Canberra on March 20. The discussions are expected to cover various topics, including economic issues such as the removal of trade barriers, as well as more sensitive issues like human rights and regional security.
• US Treasury Secretary Janet Louise Yellen remarked that it appears unlikely for interest rates to revert to levels as low as those before the Covid-19 pandemic. She also noted that the interest rate assumptions outlined in Biden’s budget plan were deemed "reasonable" and aligned with a broad spectrum of forecasts.
• According to the CME FedWatch Tool, the probability of a rate cut in March currently stands at 1.0%, while it has decreased to 7.7% for May. The likelihood of a rate cut in June and July is lower, at 59.0% and 79.4%, respectively.
• The US Core Producer Price Index (PPI) remained consistent with the rise of 2.0% year-over-year in February, maintaining its position above the 1.9% expected. The monthly report showed an increase of 0.3% against 0.5% prior, exceeding the expected 0.2% reading.
• US PPI (YoY) increased by 1.6% in February, surpassing the expected 1.1% and 1.0% prior. PPI (MoM) rose by 0.6% above the market expectation and the previous increase of 0.3%.
• US Retail Sales rose by 0.6% monthly, below the expected 0.8% in February, swinging from the previous decline of 1.1%. While Retail Sales Control Group improved to a flat 0.0%, compared to the previous decline of 0.3%.

Technical Analysis: Australian Dollar drops to near 0.6570 followed by a 50.0% retracement

The Australian Dollar trades near 0.6570 on Friday. Immediate support is seen around the 50.0% retracement level of 0.6555, which aligns with the major support at 0.6550. A breach below this level could exert downward pressure on the AUD/USD pair, with potential support at the 61.8% Fibonacci retracement level of 0.6528, followed by the psychological level of 0.6500. On the upside, the AUD/USD pair may encounter a barrier around the nine-day Exponential Moving Average (EMA) at 0.6583, preceding the psychological barrier at 0.6600. A breakthrough above this level could lead the pair to revisit the weekly high of 0.6638, followed by the major level of 0.6650.

AUD/USD: Daily Chart