- In the fourth quarter, inflation in Australia hit its lowest level in two years, reaching 0.6%.
- Market participants have given almost a 50% chance of the first RBA rate cut in May.
- Traders are preparing for the conclusion of the FOMC policy meeting.
The AUD/USD forecast was bearish on Wednesday as inflation in Australia fell, increasing the likelihood of an RBA rate cut. However, reaction to the report was light as the currency recovered from an initial drop.
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In the fourth quarter, inflation in Australia hit its lowest level in two years, coming in at 0.6% compared to expectations of 0.8%. This will play a significant role in the outcome of next Tuesday’s RBA policy meeting. Market participants have given almost a 50% chance of the first RBA rate cut in May. This is a significant increase from the 30% before the inflation report.
Meanwhile, in the US, traders are preparing for the conclusion of the FOMC policy meeting. At this point, traders expect the Fed to keep rates on hold at the meeting and possibly give some indication of the timing of a rate cut.
Recent data from the US, including employment and GDP, showed a resilient economy. The latest US job vacancies report came out on Tuesday. Vacancies increased significantly, indicating a strong labor market. Therefore, the Fed still has room to keep interest rates high.
As a result, bets on a March rate cut fell significantly. In particular, interest rate futures show a nearly 43% chance that the Fed will cut rates starting in March. This is a big drop from the 73% probability when the year started.
AUD/USD key events today
- Private sector employment change in the US
- Federal funds rate
- FOMC statement
- FOMC press conference
AUD/USD Technical Forecast: Price is holding in a tight range below 0.6625
On the charts, the Aussie continues to trade in a tight range below the key 0.6625 level. The price is below the 30-SMA within this narrow range, which means the bears have an advantage. Furthermore, the RSI supports bearish momentum as it is just below 50.
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If the bears can hold the price below the 30-SMA, it could fall further to break out of the consolidation. A strong break below support at 0.6550 would signal a continuation of the previous bearish trend. However, if the bears fail to make a significant move below 0.6550, that could be a second bottom for the downtrend. This would lead to a bullish reversal.
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