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Market Reprices Australian Interest Rate Outlook, Boosting Bullish Sentiment for the Australian Dollar
Forex
Summary:
Reserve Bank of Australia Governor Bullock warned that persistent inflation may necessitate another tightening of monetary policy. The Australian dollar surged sharply on Wednesday.
Buy
PENDINGAUDUSD
EXP
0.65350
Entry Price
0.68000
TP
0.64400
SL
0.66383 +0.00292 +0.44%
--
Point
PENDING
0.64400
SL
CLOSING
0.65350
Entry Price
0.68000
TP
Fundamentals
The AUDUSD extended its gains on Wednesday, hitting its highest level since late October and approaching the 0.6600 mark. The market's initial reaction to disappointing Australian economic growth data proved short-lived, as the likelihood of further monetary policy easing by the Reserve Bank of Australia diminished.
Reserve Bank of Australia Governor Michele Bullock testified before the Senate Economic Legislation Committee that the bank remains highly vigilant about inflation pressures rising again and is prepared to act if price increases “persist longer than expected.” She noted that upcoming data releases in the coming months will be crucial for determining whether demand pressures are easing, adding that policymakers may still need to re-tighten monetary policy if signs of inflation resurgence emerge.
When questioned about past budget and inflation forecast errors, Bullock acknowledged that the Reserve Bank of Australia “has not yet succeeded” in bringing inflation back to target levels in a sustainable manner and must continue working toward this goal. She emphasized that the Board must “keep striving to achieve this.”
She noted that with the national debt projected to exceed A$1 trillion and the deficit expected to reach A$42 billion, declining public and private savings—if investment remains unchanged—could “exert upward pressure on the neutral interest rate.”
However, she added that such an outcome is possible, though it depends on both domestic and international factors. She emphasized that while the Reserve Bank of Australia can respond to domestic dynamics, we cannot control global factors.
Market Watch: The prevailing market view is that interest rate cuts are unlikely for an extended period. However, if upcoming data comes in better than expected, the possibility of an earlier rate hike cannot be ruled out.
Technical Analysis
From a technical perspective, the AUDUSD break above 0.6579 further confirms that the pullback from 0.6706 may have ended at 0.6420. The uptrend from the 2025 low of 0.5913 may be resuming and could retest the 0.6706 high. The key question is whether the upward momentum can sustain itself to that level, or if it will weaken as it approaches that level.
Trading Recommendations
Trading Direction: Buy
Entry Price: 0.6535
Target Price: 0.6800
Stop Loss: 0.6440
Valid Until: December 20, 2025 23:55:00
Support: 0.6549, 0.6514, 0.6468
Resistance: 0.6597, 0.6617, 0.6707
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