AUD/USD gains for third week amid RBA's hawkish stance and upcoming CPI report

The AUD/USD has notched up three consecutive weeks of gains, but this upward trend comes with a twist. Every time the pair ventured above the .6562 mark, aligning with the 200-day moving average, sellers swiftly emerged.

The trajectory of the AUD/USD's future gains hinges on a trio of factors: 1. sustained positive risk sentiment, 2. the RBA's unwavering hawkish stance, and 3. a fresh impetus for the US dollar's climb, which has been on the sidelines lately despite a recalibration of expectations for Fed rate cuts in the US rates market.

This week's Australian inflation update, the January Monthly CPI indicator, is set to play a pivotal role in clarifying the RBA's position.

What's on the radar for this week's Monthly CPI indicator (Wednesday, February 28th at 11:30am):

The latest data, unveiled in late January, indicates a cooling in Australia's inflation both quarterly and monthly. A quick recap reveals:

• The headline inflation edged up by 0.6% in Q4, charting an annual pace of 4.1% YoY, undershooting the 4.3% forecast.
• The RBA's preferred inflation gauge, the trimmed mean, ascended by 0.8% QoQ, bringing the annual Trimmed Mean down to 4.2% YoY from Q3's 5.2%.
• December's Monthly CPI indicator showed a year-on-year increase of 3.4%, slightly below the 3.7% anticipated.
• Excluding volatile items, December's Monthly CPI indicator advanced by 4.2%, decelerating from November's 4.8%.

For January, expectations are set for the Monthly CPI to tick up to 3.5% YoY, mainly attributed to base effects. Despite this, the anticipated easing in inflation and a slackening labour market could pave the way for the RBA to shed its tightening bias in the months ahead. This shift is anticipated to precede a sequence of rate reductions, starting with a 25 basis points (bp) cut in August followed by another in November

Monthly CPI indicator chart

AUD/USD technical analysis

In recent weeks, the AUD/USD has stabilised and reclaimed some ground it lost during its sell-down from the December .6871 high.

The AUD/USD now needs to see a sustained move above the 200-day moving average at .6562 and above the mid-January .6625 high to warn that a more robust recovery is underway.

Aware that the longer it spends lingering under the 200-day moving average, the more chance there is of a retest of the mid-February .6442 low with scope towards weekly support near .6310.

AUD/USD daily Chart

• ^{Source:Tradingview. The figures stated are as of 26 February 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}