AUD/USD primed for movement ahead of RBA meeting and inflation update

AUD/USD strengthens ahead of RBA meeting and inflation update

The AUD/USD ended last week at 0.6807, up 1.53%, marking its highest weekly close this year. This rise comes just before this week's Reserve Bank of Australia (RBA) Board meeting and a critical inflation update.

Last week's rally was supported by:

• A strong Australian employment report,
• A 50 basis point (bp) interest rate cut by the United States Federal Reserve (Fed), which enhanced risk sentiment and weakened the US dollar,
• A surge in the Chinese yuan, reaching a 16-month high against the US dollar following the People's Bank of China’s (PBOC) decision to maintain steady rates.

While global influences and risk sentiment will continue to affect AUD/USD movements, the primary focus this week will be on the RBA Board meeting on Tuesday and the inflation update on Wednesday.

RBA preview

Date: Tuesday, 23 September at 2:30pm AEST

In August, the RBA held the official cash rate steady at 4.35% for the sixth consecutive meeting. The accompanying statement and press conference conveyed a hawkish tone.

Key points from the RBA

• Although inflation is easing, it remains significantly above the RBA's 2-3% target range.
• Quarterly underlying inflation has consistently been above the midpoint of the target for 11 consecutive quarters and has "fallen very little over the past year."
• The RBA retained the option to adjust rates, clarifying that the Board wasn't "ruling anything in or out."
• The Board is committed to returning inflation to the target range and is prepared to take necessary actions.

Despite the recent Fed rate cut, the RBA is not expected to immediately follow suit. Historically, the RBA often adjusts rates following the Fed, but there have been exceptions, such as in 2015. The RBA’s current position suggests that persistently high inflation will deter rate cuts before 2025.

Wednesday’s CPI indicator

Stubborn inflation will likely be highlighted in Wednesday’s release of the monthly consumer price index (CPI) indicator for August. Headline inflation is projected to drop sharply to 2.7% from 3.5%, while the core measure—trimmed mean—is expected to decrease slightly to 3.7% year-on-year (YoY) from 3.8%.

It is anticipated that the RBA will maintain the cash rate at 4.35% in tomorrow's meeting and continue its hawkish stance. Although last week's 50 bp rate cut by the Fed lowers the threshold for an RBA rate cut in December, about 15 bps of RBA rate cuts are currently priced in before year-end, with a cumulative 72 bps expected by May 2025.

RBA official cash rate chart

AUD/USD technical analysis

The AUD/USD remains within a messy, multi-month range. Currently, support is viewed at 0.6360/50 and resistance at 0.6880/90.

AUD/USD weekly chart

The AUD/USD is trading at 0.6830, consolidating its recent gains just below last week’s 0.6839 year-to-date high.

A significant layer of resistance at 0.6870/90 stems from the December 2023 high and weekly downtrend resistance.

If the AUD/USD breaks above 0.6870/90 on a sustained basis, it could extend its gains towards 0.7000, with the potential to reach the January 2023 high of 0.7158.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 23 September 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.}