In case you missed the data: Australian Q4 Composite CPI 4.1% YoY vs. 4.3% expected
This caused the Australian dollar to fall on the day, with AUD/USD currently down 0.5% at 0.6565. Looking at the report itself, food price inflation and declines in goods and services were welcome developments. That said, inflation levels overall remain very high.
So can we expect the RBA to follow in the footsteps of other major central banks and consider cutting rates earlier this year rather than later? Maybe.
If this trend continues, there is a good chance the RBA will take action. As things stand, the market is still pricing in the first rate cut to occur in August. However, the probability of a June rate cut is currently around 82%. This is certainly a step up from the interest rate tightening at the beginning of the year that we saw just a few weeks ago.
AUD/USD daily chart
However, if we look at AUD/USD, recent price movements indicate further correction. The decline at the beginning of the year stalled after the December low of 0.6525 hit support. Since then, price action has been trading more sideways at and around the 200-day moving average (blue line). Meanwhile, short-term resistance is currently seen around 0.6614-24.
Now that the risk to Australia is gone, it’s all about the dollar side. And the two main risk factors in this week’s trading remain the Federal Reserve and the US jobs report. This gives traders the potential to then pursue a breakout from this consolidation phase.
