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Inflation Cooling Off Is Unlikely to Alter the Trajectory; Expectations for an RBA Rate Hike in May Remain Firm
Summary:
While inflation has edged lower, forward-looking risks have increased, and expectations for a Reserve Bank of Australia (RBA) rate hike in May remain firm.
Sell
TradingAUDUSD
EXP
0.69480
Entry Price
0.66290
TP
0.70650
SL
0.69271 -0.00011 -0.02%
0
Point
Flat
0.66290
TP
CLOSING
0.69480
Entry Price
0.70650
SL
Fundamentals
Australia’s February inflation data signaled a modest cooling, but this was not enough to alter the RBA’s tightening path. The data showed that the headline CPI rose 3.7% year-on-year in February, slightly below the market forecast of 3.8%; the core inflation rate rose 0.2% month-on-month and 3.3% year-on-year, also slightly below expectations, indicating that while price pressures have eased, they remain sticky.
Combined with the previously reported slight rise in the unemployment rate, the latest data has, to some extent, alleviated the central bank’s concerns about overheating demand and the persistence of inflation. However, this “alleviation” reflects a marginal improvement rather than a reversal of the underlying trend. The labor market remains slightly tighter than full employment, and wage and service-sector inflation remain supportive, suggesting that the process of bringing inflation back to target will remain slow and uncertain.
More importantly, this round of inflation data does not yet reflect the upward pressure on energy prices caused by the situation in the Middle East (particularly the conflict in Iran). With global energy prices having risen significantly recently, imported inflationary pressures may resurface in the coming months, thereby disrupting the overall inflation trajectory once again.
Against this backdrop, the RBA is likely to place greater emphasis on forward-looking risks rather than lagging data in its policy assessment. Given the current persistence of inflation, tight labor market conditions, and external uncertainties, the market widely expects the central bank to raise interest rates by another 25 basis points at its May meeting to strengthen the management of inflation expectations and reinforce the credibility of its policy.
Technical Analysis
The current rebound pattern in the AUDUSD suggests that a short-term low may have formed near 0.6832, with the short-term trend shifting to a corrective consolidation phase; the pair is expected to trade sideways today.
However, from a trend structure perspective, as long as 0.6978 is not effectively broken to the upside and does not revert to acting as support, the exchange rate remains within a downtrend channel. If the price breaks below 0.6832 again, it will confirm the end of the rebound and resume the downtrend that began at 0.7187, with the next target at 0.6700 (corresponding to the 38.2% retracement of the 0.5913 to 0.7187 range). If this level is breached, further downside potential may open up.
Conversely, if the exchange rate breaks above 0.6978 and holds above that level, it would suggest that the current correction may have run its course, and the market structure will shift toward a deeper rebound. In that case, the pair is likely to retest the area above 0.7187 and potentially challenge the previous high of 0.7818.
Overall, the current market remains in a critical phase of uncertainty, caught between a “rebound and recovery” and a “continuation of the trend.”
Trading Recommendations
Trading Direction: Sell
Entry Price: 0.6960
Target Price: 0.6629
Stop Loss: 0.7065
Valid Until: April 30, 2026 23:55
Support: 0.6897, 0.6835, 0.6767
Resistance: 0.6978, 0.7012, 0.7063
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