Analysis of the AUD/USD Currency Pair Performance and the Impact of Inflation in Australia
Despite the weakness of the Consumer Price Index in Australia, the AUD/USD currency pair maintained its position in the market. This is in light of the positive inflation report published today, which showed a decrease in the annual inflation rate to 3.2%, compared to 3.5% in the previous period. This decrease is evidence that inflation in the country is on its way to declining, as this indicator has recorded a continuous decrease for five consecutive months. It is worth noting that this rate is very close to the target set by the Reserve Bank of Australia, which ranges between 2-3%, which enhances optimism about the stability of the economic situation in Australia.
On the other hand, the expectation that the Australian Central Bank may cut interest rates in the near future remains very high, especially with the stability of unemployment rates. Moreover, the impact of the Trump administration’s policies on inflation is still not entirely clear, which increases the state of economic uncertainty. Accordingly, the RBA may wait for quarterly inflation data, due on January 29, before making any decision on whether to cut interest rates in February. Also, any action by the central bank may require a further decline in employment figures to justify such a move.
AUD/USD interaction with Australian market performance
Despite the weak Australian CPI, the AUD/USD currency pair remained relatively flat on the day. This reflects the market’s moderate reaction to economic data, especially as Australian bond yields fell across the curve. The 1-3-year bond yield fell by around 6 basis points, its worst performance in four weeks. In contrast, the ASX 200, one of the most prominent indicators of the Australian market, rose, relatively ignoring the effects of lower inflation.
AUD/USD Forecast for the Future
Although this rise raises some questions about previous market expectations, it has not yet reached its peak, which means that there is resistance nearby that could limit the continuation of the rise.
I continue to believe that the AUD/USD pair will see a recovery in the future, especially in light of the continued confirmation of the expectations of interest rate cuts. The upcoming data from the Reserve Bank of Australia could play a big role in pushing this pair higher, as this data could indicate stability in the Australian economy with declining inflation. If the pressure on the AUD/USD pair from the repercussions of monetary policy continues, there may be opportunities to buy this pair in the long term.
Technical analysis of the EUR/AUD pair and the possibility of a decline
On the other hand, the technical analysis of the EUR/AUD pair reflects a high possibility of a collapse in the near future. Although the pair has witnessed a significant rise in the recent period after breaking the lows of June and October, this rise did not last long. The pair struggled to hold on to its gains, and after reaching the 1.68 level in late December, it began a clear extension of the bearish range from January 2nd.
At the moment, the current moves of the EUR/AUD pair appear to be a bearish pattern, which may reflect the weak momentum that the pair has seen in recent months. If this trend continues, the bears may target the strong support level near 1.6500, which represents the control point for trading volume during December.
The AUD/USD pair is expected to continue to fluctuate within a limited range in the short term, while the upside remains likely in the event of a rate cut in the coming months.
Reasons for the Increased Probability of a Rate Cut in Australia
Current economic indicators in Australia suggest that the chances of interest rates being cut in the near future are high. Monetary policy is one of the primary tools used by the central bank to control inflation and stimulate the economy. In this article, we review the main reasons that drive these chances higher.
- Low inflation
One of the main reasons that the Reserve Bank of Australia is moving towards cutting interest rates is the gradual decline in inflation rates. Recent data showed that the annual inflation rate fell to 3.2%, which is close to the central bank’s target range of 2-3%. If this trend continues, the bank may see a rate cut as helping to stabilize prices and support economic growth.
- Declining unemployment rates
Recent figures suggest that the labor market in Australia is improving significantly, with unemployment rates gradually falling. In light of this improvement, the central bank may feel that economy needs more stimulus, which increases the chances of a rate cut. When the unemployment rate falls, the workforce becomes more capable of supporting consumption and growth.
- Impact of global economic policies
The Australian economy does not operate in an isolated bubble. Global factors, such as trade tensions and monetary policies of major countries, affect the performance of Australian economy. With global pressures continuing, the Reserve Bank of Australia may find that cutting interest rates will be an effective tool to support the domestic economy. These factors put the economy in a position that requires stimulus measures to boost growth.
- The need to stimulate investment
Australia faces challenges in attracting domestic and foreign investment. Lowering interest rates may help increase demand for investment by lowering the cost of borrowing. When financing costs become lower, investors tend to increase their investments, which boosts economic growth.
