• Australia’s Q1 inflation figures came in stronger than expected.

• Investors had expected the RBA to return to its hawkish stance.

• RBA Governor Michele Bullock said interest rates were at the right level to lower inflation.

The AUD/USD outlook took a bearish turn, with the Aussie plunging after the Reserve Bank of Australia withheld any hawkish signals. Given Australia’s recent upbeat data, investors expected a more hawkish tone at the meeting. They were, however, disappointed when the central bank maintained that inflation was declining.

The Reserve Bank of Australia held interest rates on Tuesday, pushing back expectations for a rate hike. Australia’s Q1 inflation figures came in stronger than expected. Meanwhile, the labor market remains resilient. As a result, investors had expected the RBA to return to its hawkish stance and possibly signal a rate hike in the future.

However, RBA governor Michele Bullock said interest rates were at the right level to lower inflation to the central bank’s target. This increased the chance that the next move from the RBA would be a rate cut. Furthermore, expectations for an RBA hike in September fell from 43% to 16%.

However, it remains one of the few major central banks that might cut after the Federal Reserve. Therefore, there is a low risk for divergence that would weaken the Aussie as much as other major currencies like the Canadian dollar.

The outlook for rate cuts in the US became clearer when last week’s jobs report revealed weakness in the labor market. Still, policymakers can only gain confidence that the labor market is easing if the trend continues.

AUD/USD key events today

Investors will keep absorbing the outcome of the RBA meeting since no key reports are coming from the US.

AUD/USD technical outlook: Bearish momentum propelling to 0.6575

On the technical side, the AUD/USD price has pulled back sharply from its recent highs and is approaching the 0.6575 critical support level. However, the bias remains bullish because the price still trades above the 30-SMA. At the same time, the RSI supports bullish momentum above 50.

However, the recent surge in bearish momentum could reverse this bullish bias. Bears will take charge if the price breaks below the 0.6575 key support level and the 30-SMA support line. If not, the price will bounce higher to continue the bullish trend by breaking above the 0.6650 key level.

https://www.forexcrunch.com/blog/2024/05/07/aud-usd-outlook-rba-holds-back-on-hawkish-signals/