By Justin McQueen

April 14 (Reuters) - The AUD broke 0.7100 on Tuesday, with U.S. dollar downside momentum gathering pace as the recent flip to net long USD positioning gets stress-tested.

The focus now is for a test of 0.7150, where a break there opens up the YTD high at 0.7188. The recent price action looks like a bit of a chase, where anyone who faded the geo-risk unwind is getting squeezed out.

The positioning story is telling, with recent longs getting caught flat-footed by the speed of USD softness, thus the pain trade remains higher AUD.

On the domestic front, Reserve Bank of Australia Deputy Governor Andrew Hauser leaned hawkish overnight, flagging that rates are not yet sufficiently restrictive. Headline CPI is sitting at 3.6%, which is above the RBA's 2% to 3% target band. Markets have priced accordingly, and are now attaching a 68% probability for a May hike. It's worth noting the March decision was a 5-4 split, a close call, but directionally it was when, not if. The minority simply wanted more data before pulling the trigger again.

Looking ahead, the two prints to watch that could drive the next leg will be AU employment – due April 16 – where a solid number keeps a May hike on the table and puts a floor under AUD dips. Meanwhile, Q1 CPI – due April 29 – will be the deciding factor, where a topside surprise likely cements May as the base case, re-opening fresh AUD upside, particularly on the crosses.

If the data delivers, AUD/NZD will be a cleaner expression, given the still-fluid USD backdrop.
AUD pricing


(Justin McQueen is a Reuters market analyst. The views expressed are his own.) ((Email: ))