AUD/USD Tries to Find Support Despite AU Inflation Cooling

  • AUDUSD
    (${instrument.percentChange}%)

AUD/USD Analysis

The Reserve Bank of Australia had raised rates at 5.35 and the highest level since 2011 in November, but slowed the pace of tightening in 2023 (with 125 bps of hikes) and stood pat in the last meeting of the year. Economic activity has been slowing down and GDP grew by just 0.2% q/q in the third quarter. At the same time, Inflation has been cooling and headline CPI eased to 5.4% in Q3. Today's monthly report showed moderation to 4.1% y/y in November, marking the smallest increase in nearly two years.

This strengthens the case for the end of the tightening cycle and markets believe that the terminal rate has been reached. However, the central bank has not ruled out further tightening and the accounts of the last decision revealed that policymakers considered the case for another hike [1]. Inflation remains far from the 2-3% goal and officials don't expect it to hit the top of that range before the end of 2025, according to the last projections. [2]

AUD/USD started the new year with losses, after two straight profitable months, creating risk for a breach of the 38.2% Fibonacci of the last leg up (0.6640). This would expose it to 0.6525, but we are cautious around sustained weakness.

The pair tries to find support today, despite the further cooling of Australian inflation, which could allow RBA officials to refrain from further hiking and eventually start normalizing policy. Its US counterpart is more dovish, as it has pointed to peak rates and already projects cuts this year, to the tune of 90 basis points [3]. Above the EMA200 (black line) and the 38.2% Fibonacci immediate bias is on the upside and AUD/USD has the ability to push towards 0.6900. The next leg of the move will be determined by Thursday's US CPI update.

Nikos Tzabouras

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.

References

1

Retrieved 10 Jan 2024 https://www.rba.gov.au/monetary-policy/rba-board-minutes/2023/2023-12-05.html

2

Retrieved 10 Jan 2024 https://www.rba.gov.au/publications/smp/2023/nov/pdf/statement-on-monetary-policy-2023-11.pdf

3

Retrieved 16 Apr 2024 https://www.federalreserve.gov/monetarypolicy/files/fomcprojtabl20231213.pdf

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