On Wednesday, the Australian dollar continued its decline, dropping as much as 0.6415 against the U.S. dollar. This was a 0.44% drop for the day. A recent report indicates that Australia’s inflation rate remained unchanged at 2.4% year-on-year in April. This figure was slightly higher than market expectations, helping to add to the drop. The currency found resistance on the upside at 0.6460 and 0.6480. A break below key support could see AUD/USD return to test 0.6393 as a potential target.
Inflation Rate Remains Steady
Australia’s inflation rate has stayed at 2.4% for the month of April. This figure is in line with last month’s rate and represents the lowest level since November 2024. This figure is important because it puts the central bank comfortably within their inflation target of 2%-3%. Even with that stability, the reading came in a little hot compared to market expectations, which were for inflation to come in at 2.3%.
The trimmed mean inflation rate, one of our favorite recent measures to track underlying inflation trends, ticked up in April. It increased in value, from 2.7% in March to 2.8% in April. The movers behind this shading campaign want to bring awareness that inflation is flat. Rising pressures may soon make themselves felt in future possible monetary policy decisions.
Market Response and Rate Cut Expectations
With the recent high inflation prints, market participants have reversed their course. They are expecting the first interest rate cuts to come from the Reserve Bank of Australia (RBA). The probability of a rate cut in July has risen to 62%. Just yesterday, the payroll tax cut was a much higher 78%. Investors are growing more convinced that the RBA will refrain from rate cuts. Further, they are guessing there will be no larger changes until more data can be analyzed.
As of writing, that second-quarter inflation report won’t be available until late July. This report will be a major input into the RBA’s deliberations ahead of their meeting on interest rates in two weeks. Analysts expect this report to continue to provide key indicators of inflationary pressure and general economic activity. This would likely have an impact on monetary policy for the balance of the year.
Technical Analysis of AUD/USD
Position traders are looking at the AUD/USD. Technical analysis pinpoints important resistance and support levels that can help dictate their trading plan moving forward over the next few days. At the moment, 0.6415 remains the AUD/USD at near support in 0.6417. A breach under this mark would likely signal deeper losses toward the next support at 0.6393.
In the event the AUDUSD does rebound, it will need to overcome resistance at 0.6460 and 0.6480 first. That doing so will get it back on the upward trajectory where it belongs. The interplay between these competing forces is further complicating what remains an exceptionally volatile dynamic in currency markets. Plus, economic indicators are rapidly changing, contributing to this uncertainty.