AUD/USD Extends Losses as Australian inflation Eases

AUD/USD Analysis

The Reserve Bank of Australia is the notable holdout in monetary policy as it has not followed its major peers to their easing cycles. Still wary of inflation, policymakers maintained their hawkish stance at the last meeting, with Governor Bullock once again ruling out rate cuts in the near term ^[1]. Today's inflation data though showed further progress on the disinflation process. CPI rose by just 2.1% y/y in September and 2.8% y/y in the third quarter, both marking the slowest pace in over three years.

Despite the central bank's divergence, AUD/USD runs its fifth straight losing week and heads towards its worst month of the year. That's largely a reaction to USD strength from the Fed's cautious shift after September's jumbo cut, due to persistent inflation and strong economy and labor market. Today's inflation data from Australia will keep pressure on the RBA to cut and the pair extends its losses as a result towards the 0.6500 handle. This creates risk for a test of 0.6442, although the 2024 lows seem distant for now.

Even though headline inflation eased, services ticked up and core measures were more persistent. Although it is getting harder to maintain its hawkish stance, the RBA is unlikely to pivot at next week's meeting. At the same time, markets still expect the Fed to cut rates twice this year, despite recent reserve. The monetary policy differential can lend support to the pair in the medium term and recovery effort towards the Ichimoku Cloud would be reasonable. Moves above the EMA200 (black line) that would pause the bearish bias would need strong catalyst.

The trajectory of the pair will be determined by a slew of crucial data and events over the coming days, starting with US PCE and NFPs. Next week, both the RBA and the Fed announce their latest rate decisions.