- The RBA noted that the worst phase of inflation had passed.
- After reaching a high of 7.8% last year, Australia’s inflation has since declined to 6%.
- Market experts and analysts hold differing opinions on the possibility of another rate increase later this year.
Today’s AUD/USD outlook is bearish. Australia’s central bank head stated on Friday that the worst inflation phase had passed. However, he acknowledged the potential need for additional policy tightening, which would hinge on incoming data and evolving risks.
Moreover, the outgoing Governor of the Reserve Bank of Australia, Philip Lowe, remarked that recent data align with the economy’s trajectory toward a gradual stabilization. This path aims for a gentle decline in inflation without witnessing a sharp rise in unemployment.
After reaching a high of 7.8% last year, inflation has since declined to 6% in the last quarter. Furthermore, the projection is for inflation to return to the Reserve Bank’s target range of 2-3% by late 2025.
Lowe mentioned that following a significant 400 basis points increase in interest rates since May of the previous year, and policymakers are fine-tuning the strategy. This approach is needed because interest rates are already restrictive. Therefore, they can achieve an equilibrium between supply and demand.
Notably, this appearance marked Lowe’s final one in this capacity, as the government opted not to extend his term beyond mid-September. Instead, Deputy Governor Michele Bullock will take over.
The Reserve Bank of Australia’s vigorous rate hikes have propelled the cash rate to a ten-year peak of 4.1%. However, they paused rate hikes in July and August to evaluate whether inflation was moving as desired.
Market experts and analysts hold differing opinions on the possibility of another rate increase later this year.
AUD/USD key events today
Investors will get more inflation data from the US when the producer price index report comes out later.
AUD/USD technical outlook: Bullish RSI divergence
On the technical side, AUD/USD is bearish as the price is below 30-SMA. Moreover, the RSI trades under 50, supporting bearish momentum. Bulls attempted to take the lead when the price broke above the 30-SMA. However, bears held control, pushing the price back below the SMA.
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Nonetheless, the bearish move shows weakness, as seen in the bullish RSI divergence. Therefore, if bears cannot breach the 0.6500 support, we might see bulls make another attempt at taking control.
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Saqib Iqbal
