- Australia’s CPI rose 1% in Q1, beating estimates for a 0.8% increase.
- There is a 4% chance of an RBA hike in August.
- PMI data showed a decline in business activity in the US in April.
The Australian dollar is rising, boosted by unexpectedly high inflation figures, painting a bullish picture for the AUD/USD forecast. Following this report, investors lowered their expectations for a rate cut by the Reserve Bank of Australia. On the other hand, the dollar was weak after PMI data revealed a slowing economy.
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Investors have given up hope of an RBA cut this year after Australia’s consumer price index beat forecasts. In Q1, CPI increased by 1%, beating estimates of a 0.8% increase. Significantly, the increase was due to stubborn pressures on service costs. Following the report, expectations of an RBA rate cut fell sharply, with some even pricing in a 4% chance of an August hike.
The RBA remained largely cautious on rate cuts due to the still tight labor market. However, there was hope that the central bank would start operating sometime this year. This latest report has changed that outlook, as the RBA may not cut rates in 2024. As a result, the Australian currency has a slight advantage over other major currencies, given that the RBA may cut rates after the Fed.
Meanwhile, the AUD/USD pair received additional support from a weaker US dollar. PMI data on Tuesday showed a drop in US business activity in April, which relieved the Fed. Any sign of weaker economic demand gives policymakers more confidence that inflation will decline.
AUD/USD key events today
Investors will continue to absorb the impact of the Australian CPI report as there are no major reports coming out of the US.
AUD/USD Technical Forecast: Bulls set their target at 0.6625 resistance
On the technical side, the AUD/USD price is well above the 30-SMA, showing that the bulls are in the lead. Furthermore, the RSI is trading near the overbought region, supporting solid bullish momentum. The bears lost control of the market when they failed to close below the key support level of 0.6400. Instead, the price made a big fuse, signaling a rejection of lower prices.
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At the same time, the RSI made a bullish divergence that revealed a weaker bearish momentum. With the bulls in the lead, the price crossed the key psychological level of 0.6500. They could pause at this level for a while before targeting 0.6625.
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