AUD/USD Rises as RBA Holds Rates & Resists Broader Easing Push

AUD/USD Analysis

The Reserve Bank of Australia kept rates at 4.35% ^[1] and thirteen year highs for eight straight meeting, still wary of inflation. CPI eased to 2.8% y/y in the third quarter and the lowest in more than three years, but the updated forecasts show that headline CPI will only fall within the 2%-3% target range in late-2026 ^[2]. Furthermore, officials view this moderation as "temporary" and attributed it to declines in fuel and electricity prices. Instead, they focused on underlying CPI (trimmed mean) which showed slower decline to 3.5% y/y. They believe this measure is "more indicative of inflation momentum" and it remains "too high".

The RBA is an outlier against the broader rate cash push and once again refused to signal a rate cut, while not excluding further tightening. Officials once again did not rule anything out and stressed that policy will need to be "sufficiently restrictive" until they have confidence that inflation is moving "sustainably" towards the 2%-3% target. During her press conference, Governor Bullock was not drawn into forward guidance and only officials "have got the right settings" at the moment. ^[3]

The RBA's hold and hawkish rhetoric solidifies the policy differential with its counterpart, which made an outsized pivot in September and has hinted at multiple cuts ahead ^[4]. AUD/USD rises as result, trying to end the five-week losing streak, with technical for further rebound. However the upside contains crucial roadblocks and strong catalyst would be needed for moves above the EMA200 (black line) and the 38.2% Fibonacci of the last leg down that would pause the bearish bias.

On the other hand, the RBA may have an increasingly hard time to resist rate cuts as the economy struggles and as it lowered its GDP forecasts throughout the projection period. Additionally, the Fed has turned cautious recently on further easing and although markets still expects another 50 bps of cuts this year, chances of smaller reduction are non-negligible and there is great uncertainty around the monetary path.

Below the aforementioned pivotal resistance confluence, AUD/USD remains vulnerable and in risk of lower lows towards 0.6500. Sustained weakness towards and below 0.6442 does not look easy though from a monetary policy standpoint.

The trajectory of the pair will be affected by key incoming events that include today's Presidential Elections in the US and the Fed's rate decision later in the week.