Elevated Aussie Inflation Places the Spotlight on AUD/USD Resist
Overnight, Aussie inflation accelerated for a second successive month, according to the Monthly Consumer Price Index Indicator, rising +3.6% in the twelve months to April and surpassing the +3.4% median market estimate and the +3.5% print reported in March. This will be unwelcome news at the Reserve Bank of Australia (RBA) and highlights that we will unlikely see a rate cut this year.
The Australian Bureau of Statistics (ABS) noted that price increases were seen in housing (+4.9%), food and non-alcoholic beverages (3.8%) and alcohol and tobacco (+6.5%).
RBA: ‘Not Ruling Anything Out’
The previous RBA meeting saw the nine-member Board hold the Cash Rate at a 12-year peak of 4.35%; this follows a total of 425bps of tightening from May 2022 until November 2023. The central bank's overarching message at this meeting is that they are still ‘not ruling anything out’. The decision to hold rates unchanged followed Q1 inflation surpassing market estimates as well as the RBA’s forecasts.
Looking Ahead
The RBA meets next on 18 June, and given the latest inflation data, a rate adjustment from the central bank is very doubtful. In fact, according to the OIS curve, the chance of a rate cut unfolding this year is unlikely, with investors now pricing in a possible rate hike in September (around a 30% probability is priced in as of writing). This consequently triggered a short-term spike in the AUD versus its US counterpart to a high of $0.6666 before swiftly reclaiming pre-announcement levels.
Regarding where the AUD/USD stands, longer-term market action reveals buyers and sellers have been squaring off between two converging lines on the monthly chart, establishing what many technical analysts will view as a potential bearish pennant pattern drawn from $0.7158 and $0.6170. You will note that price is also challenging the upper boundary of the pennant formation, indicating possible resistance ahead. As a note, it is worth bearing in mind that although pennant patterns are considered continuation formations, they have been known to signal trend reversals upon failure of the pattern.
Another technical observation worth taking on board, of course, is that the Relative Strength Index (RSI) on the monthly chart has been exploring terrain south of the 50.00 centreline since early 2022, demonstrating negative momentum.
The Australian Bureau of Statistics (ABS) noted that price increases were seen in housing (+4.9%), food and non-alcoholic beverages (3.8%) and alcohol and tobacco (+6.5%).
RBA: ‘Not Ruling Anything Out’
The previous RBA meeting saw the nine-member Board hold the Cash Rate at a 12-year peak of 4.35%; this follows a total of 425bps of tightening from May 2022 until November 2023. The central bank's overarching message at this meeting is that they are still ‘not ruling anything out’. The decision to hold rates unchanged followed Q1 inflation surpassing market estimates as well as the RBA’s forecasts.
Looking Ahead
The RBA meets next on 18 June, and given the latest inflation data, a rate adjustment from the central bank is very doubtful. In fact, according to the OIS curve, the chance of a rate cut unfolding this year is unlikely, with investors now pricing in a possible rate hike in September (around a 30% probability is priced in as of writing). This consequently triggered a short-term spike in the AUD versus its US counterpart to a high of $0.6666 before swiftly reclaiming pre-announcement levels.
Regarding where the AUD/USD stands, longer-term market action reveals buyers and sellers have been squaring off between two converging lines on the monthly chart, establishing what many technical analysts will view as a potential bearish pennant pattern drawn from $0.7158 and $0.6170. You will note that price is also challenging the upper boundary of the pennant formation, indicating possible resistance ahead. As a note, it is worth bearing in mind that although pennant patterns are considered continuation formations, they have been known to signal trend reversals upon failure of the pattern.
Another technical observation worth taking on board, of course, is that the Relative Strength Index (RSI) on the monthly chart has been exploring terrain south of the 50.00 centreline since early 2022, demonstrating negative momentum.
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