The Australian Dollar (AUD) is currently trading around $0.65050, reflecting a 0.3% uptick in today’s session. This positive momentum extends its rally for the fourth consecutive session, bolstered by stronger-than-anticipated domestic inflation data. Australia’s Consumer Price Index (CPI) for the first quarter stood at 3.6%, slightly beating the market consensus of 3.4%. The monthly CPI also accelerated to 3.5% in March, defying market expectations of stability.
This unexpected surge in inflation has altered market expectations for the Reserve Bank of Australia’s (RBA) monetary policy. Previously, bets were on a rate cut in September. However, the robust inflation print has caused analysts to push back these expectations, with some, like Westpac, now predicting a November cut. The RBA has repeatedly emphasized its commitment to taming inflation, and stronger inflation figures suggest a less dovish stance, supporting the AUD.
Technical Analysis
The 4-hour shows that the AUDUSD price action is currently trading at 0.65050, reflecting a bullish resurgence. The recent price action witnessed a significant break above the key Simple Moving Averages (SMAs), including the 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line). This bullish breakout suggests a potential shift in momentum towards the upside. The upward trajectory of the 20-SMA crossing above the 50-SMA further reinforces this bullish bias. However, it’s important to note that both the 20-SMA and 50-SMA remain below the 100-SMA, indicating a degree of technical uncertainty.
The Relative Strength Index (RSI) currently sits at 67.61, nearing overbought territory. This suggests that a potential short-term retracement could be on the cards. However, a sustained break above the current resistance level of 0.65528, with significant volume, could open the door for a test of the 0.66329 and 0.66674 resistance levels in the near future.
Conversely, if the bulls fail to maintain momentum and the price falls below the crucial support level of 0.64555, it could signal a potential return of bearish sentiment. A confirmed break below this level would expose the 0.63893 support and the major support zone at 0.63399.
Summary
The AUDUSD has undergone a dramatic turnaround, fueled by hotter-than-expected inflation data in Australia. This has led to a reassessment of the RBA’s monetary policy outlook, with the prospect of steady or even rising interest rates becoming more likely. Technically, the price action reflects a bullish breakout above key SMAs, but the RSI suggests a potential short-term pullback.
Sources: TradingView, Trading Economics, Australian Bureau of Statistics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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