Skip to content

CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved. CFDs are leveraged products. CFD trading may not be suitable for everyone and can result in losses that exceed your deposits, so please consider our Risk Disclosure Notice and ensure that you fully understand the risks involved.

AU CPI update: Australian dollar off lows

Australia inflation eased from the previous quarter but slowed less than expected; persistent price pressures leave the door open for further RBA tightening and what’s next for AUD/USD?

Source: Bloomberg

The Australian dollar recouped initial losses against the US dollar after data released showed Australian price pressures remain stubbornly high, keeping alive the possibility of further tightening by the Reserve Bank of Australia.

  • Australia's CPI rose to 7% on-year in the January-March quarter vs 6.9% expected from 7.8% in the previous quarter and well above the central bank’s target band of 2%-3%
  • CPI rose 1.4% on-quarter vs 1.3% expected, down from 1.9% in the previous quarter
  • Trimmed mean slowed to 1.2% on-quarter from 1.4% expected vs 1.7% previously
  • The slow cooldown in inflation toward RBA’s target implies it may be too early to call an end to the tightening cycle.

The market is now pricing in the RBA Cash Rate at 3.81% by August (vs 3.6% now), up from 3.72% just before the CPI data.

Australia inflation and the economic surprise index

Source: Bloomberg; chart prepared in Excel

The RBA left interest rates unchanged at its meeting earlier this month saying it wanted additional time to assess the spillover of previous rate hikes on the broader economy but left the door open for additional tightening. “It was important to be clear that monetary policy may need to be tightened at subsequent meetings”, said the minutes of the RBA April 4 meeting.

The minutes showed board members considered the case for another 25-basis point increase as inflation “remained too high and the labour market was very tight”. The board also considered the faster-than-expected pickup in population growth and wage growth before opting to pause the rate hikes.

AUD/USD five-minute chart

Source: TradingView

Australian macro data has underwhelmed in recent weeks, as the Economic Surprise Index shows.

The job market has been tight with the unemployment rate hovering around five-decade lows, but signs of moderation in the labour market are emerging. Developments abroad (including recession risks in the US and credit market tightening as a result of the stress in the banking sector) raise the downside risk to the outlook.

On the positive side, China's macro data have beaten expectations in recent weeks, prompting analysts to upgrade the outlook on the world’s second-largest economy for 2023. Given that China is Australia’s biggest export market, any improvement in China’s growth outlook could boost Australia’s growth prospects.

In sum, unless risk appetite shrinks, from a macro perspective, things appear to be evenly balanced for AUD/USD for now.

AUD/USD technical analysis

On technical charts, AUD/USD has settled in a narrow range recently, with the downside marked at the March low of 0.6550, while the topside is capped under a tough ceiling around the 89-day moving average, roughly coinciding with the early-April high of 0.6795.

On the downside, immediate support is at 0.6625. AUD/USD needs to cross the upper edge of the range for the outlook to turn constructive.

AUD/USD daily chart

Source: TradingView

The information on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG Bank S.A. accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer.

Live prices on most popular markets

  • Forex
  • Shares
  • Indices

Prices above are subject to our website terms and agreements. Prices are indicative only. All shares prices are delayed by at least 15 mins.

You might be interested in…

Find out what charges your trades could incur with our transparent fee structure.

Discover why so many clients choose us, and what makes us a world-leading provider of CFDs.

Stay on top of upcoming market-moving events with our customisable economic calendar.