The Reserve Bank of Australia had paused its rate hiking cycle in April in order to assess the situation, but that did not last long. It restarted it in May and followed through earlier this month with another 0.25% rate increase, while keeping the door open to more moves . The reason for the continuation of monetary firming was to provide "greater confidence" that inflation will return to the 2-3% target in a "reasonable timeframe".
Policymakers believe that inflation has already peak, but remains "still too high". The Consumer Price Index (CPI) had moderated to 7% y/y in the first quarter, while monthly data had shown and increase to 6.8% y/y in April. Today's release however, revealed a sharp deceleration to 5.6% y/y in May, marking the smallest growth in thirteen months. This figure will be welcomed by RBA officials and may allow them to stay in the sidelines, when they meet next month.
The further tightening by the RBA had helped AUD/USD during the first half of June from its 2023 lows, but reversed course after the US Fed projections implied an additional 50 basis points of hikes  – despite this month's pause – and Chair Powell's hawkish Congress testimony. Today's CPI report push the pair lower and expose it to 0.6563, although new catalyst will be required for fresh 2023 lows (0.6456).
Despite today's slide, the Relative Strength Index (RSI) moves towards oversold levels and this could help AUD/USD contain the fall and rebound. A return above the EMA200 would not be surprising, but the upside contains multiple roadblocks and challenging 0.6900 looks like a tall order.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
Retrieved 27 Jun 2023 https://www.rba.gov.au/media-releases/2023/mr-23-13.html
Retrieved 03 Mar 2024 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20230614.htm