Synopsis:

While April has seen broad-based USD weakness, the AUD has underperformed its commodity currency peers, rising only modestly against the dollar. Credit Agricole attributes this to weak domestic data and Australia’s exposure to China amid ongoing trade tensions.

Key Points:

• Relative Underperformance in April:
  AUD/USD has risen only ~1.5% this month, compared to ~3% for CAD and ~4.5% for NZD, reflecting Australia’s weaker economic data surprises.

• RBA Policy Outlook Uncertain:

  • The market is pricing in up to 50bps of rate cuts for May.

  • However, core inflation (trimmed mean at 3.2% YoY) is still above target, limiting the RBA’s room to ease.

  • Next week’s CPI is critical: a QoQ print below 0.7% could pave the way for a rate cut, but expectations are already heavily priced in.

• AUD as a Proxy for China Risk:

  • AUD remains a liquid proxy for China sentiment, and US-China trade tensions continue to suppress AUD upside.

  • Despite recent softer rhetoric from US officials, markets remain cautious, and a meaningful rally in AUD likely requires tangible progress on a trade deal.

Conclusion:

While soft CPI next week may unlock RBA easing, the AUD’s upside remains capped unless investors see real progress on US-China trade negotiations. Given this, AUD is likely to remain a laggard versus CAD and NZD in the near term.