- Australia experienced a slowdown in consumer inflation in May.
- There is a lower chance of a June RBA rate hike.
- The RBA has increased interest rates by 400 basis points to 4.1% since May last year.
Today’s AUD/USD forecast is bearish. Australia experienced a slowdown in consumer inflation in May, reaching a 13-month low. A significant decline primarily influenced fuel prices.
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Furthermore, this deceleration in inflation, coupled with a cooling of core inflation, indicates that there may not be a need for further interest rate hikes in July.
According to data on Wednesday, the monthly consumer price index rose by 5.6% in the year leading up to May. This marked the smallest growth since April of the previous year.
This figure is notably lower than the previous month’s 6.8% and falls well below market expectations of 6.1%. Consequently, market sentiments adjusted to reflect a reduced rate hike probability in July, now estimated at 30%. Moreover, there is speculation that interest rates are more likely to peak at 4.35% instead of the previously anticipated 4.6%.
Notably, the Reserve Bank of Australia had increased interest rates by 400 basis points to 4.1% since May of the previous year. However, the potential upward risks to inflation have prompted the central bank to adopt a cautious approach in recent months, indicating the possibility of further rate increases.
Despite these circumstances, some factors go against a pause in rate hikes next week. One closely monitored measure of prices, excluding volatile elements and holiday travel, only experienced a slight slowdown from 6.5% to 6.4%.
AUD/USD key events today
Federal Reserve Chair Jerome Powell is set to speak at an ECB forum later in the day. Investors will watch this speech as it might contain hints on future monetary policy moves.
AUD/USD technical forecast: New lows strengthening the bearish bias.
AUD/USD has hit new lows in the downtrend in the 4-hour chart. This has strengthened the bearish bias as the RSI has moved closer to the oversold region. At the same time, the price has gone farther below the 30-SMA, showing bears are in charge.
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Bears have broken below the 0.6650 support level, which paves the way for a retest of the 0.6600 support level. The bearish bias will stay strong if the price stays below the 30-SMA.
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Saqib Iqbal
