Inflation Drops Back in Feb
The RBA will no doubt be welcoming the latest Australian inflation data received overnight. Yearly CPI was seen falling back to 7.4% in February, down from the 8.4% peak marked in January and below the 8.1% reading the market was looking for. The spike in January inflation threw a major spanner into the works for the RBA. On the back of having pivoted on rates over the end of last year while inflation was falling, the unexpected resurgence in January inflation saw the market repricing its RBA rates outlook for the year ahead.
Hawkish RBA Expectations
Following that inflation reading, the RBA meeting minutes showed that elevated inflation was still a major concern for the bank. Several members were seen supporting further rate hikes with the board agreeing as a whole that further hikes would be necessary in coming months. While pricing for a larger .5% hike had been creeping up, this latest inflation reading likely negates the need for more aggressive action, putting the focus back on smaller .25% hikes.
RBA Growth Outlook in Focus
Given that the Aussie growth outlook was taking a hit amidst fresh expectations of a more hawkish approach from the RBA, a weaker inflation reading should help this outlook improve. Looking ahead, the focus now will be on next week’s RBA meeting. With a .25% the most likely option, traders will be carefully monitoring the bank’s latest guidance in a bid to gauge how far the bank is likely to push with rates this year which will be key determining AUD direction into Q2.
Technical Views
AUDUSD
The reversal lower in AUDUSD has seen the pair trading from highs around .7103 and down through the bull channel. Price is currently stalled on support at the .6681 level and with momentum studies bearish here, the focus is on a break lower towards the .6535 level next unless bulls can get back above the .6857 level near-term.
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With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.