empty
09.01.2025 12:28 AM
Inflation Report Strengthens Market Confidence in RBA's Readiness to Begin a Rate-Cutting Cycle: AUD/USD Overview

The first data release of the year from Australia is primarily neutral, with a slight positive trend. The PMI in the services sector increased from 50.4 to 50.8 in December, while the composite index moved out of contraction territory, rising from 49.9 to 50.2 compared to the previous month.

However, the main focus was on the release of the monthly consumer inflation index, which typically influences forecasts regarding the Reserve Bank of Australia's (RBA) intentions. This index increased from 3.2% to 3.3% year-over-year in November, initially suggesting rising inflation that could prompt the RBA to adopt a more hawkish stance. However, the trimmed mean CPI, which removes volatile components and is closely monitored by the RBA, actually slowed from 3.5% to 3.2%.

This image is no longer relevant

The recent release has put selling pressure on the Australian dollar, as market expectations for the RBA have shifted. Currently, there is an 80% probability of a rate cut anticipated at the RBA's February meeting, and this is expected to be fully priced in by the April meeting. Although these forecasts may change once the complete Q4 report is released on January 29, a clear trend has emerged: inflation is declining, and the RBA can no longer overlook this reality, especially considering the slow pace of economic recovery. Since November 2023, the RBA has maintained steady interest rates, making it the last major central bank not to begin a rate-cutting cycle. This decision was partly justified by the RBA's lower peak interest rate compared to most other central banks, which allowed it to pause. However, the current economic climate now suggests that the RBA should consider joining the global trend of monetary easing.

Meanwhile, the US dollar has ended its recent decline following the release of the ISM services PMI on Tuesday. The index increased from 52.1 to 54.1, surpassing forecasts. This improvement strengthens the case for the Federal Reserve to postpone rate cuts and maintain higher yields.

Today, market tensions intensified following reports from sources close to President-elect Donald Trump, indicating that he is considering declaring a state of economic emergency. This declaration would enable him to impose broad tariffs on both allies and adversaries. By utilizing the International Emergency Economic Powers Act (IEEPA), Trump would gain the authority to unilaterally regulate imports during emergencies. Unsurprisingly, the markets reacted swiftly: global bond yields surged, the dollar strengthened, and risk assets, particularly in countries likely to be impacted by changes in tariff policies, came under pressure. Australia, as China's largest trading partner and a key target of Trump's tariff plans, is particularly at risk.

Given the current circumstances, there is little reason to expect the Australian dollar to strengthen. Both internal and external factors are working against it. Market expectations of an imminent rate-cutting cycle by the RBA are putting downward pressure on the Aussie dollar due to anticipated declines in yields. This stands in stark contrast to the Fed, which is supported by the strong performance of the US economy.

Speculative positioning on the Australian dollar (AUD) remains strongly bearish, with the calculated price below the long-term average and continuing to trend downward. Currently, there are no signs of a reversal.

This image is no longer relevant

The AUD/USD pair is approaching the support level of 0.6173, which was identified in previous analysis as a key target. The bearish momentum has not yet been fully exhausted, suggesting that the price may test 0.6173 and subsequently consolidate below this level. Although oversold conditions present an increased risk of a corrective rebound, there are no fundamental factors supporting a correction for the Australian dollar at this time. We expect the downtrend to persist, potentially reaching the long-term target of 0.5513.

Kuvat Raharjo,
Analytical expert of InstaForex
© 2007-2025
Summary
Urgency
Analytic
Evgeny Klimov
Start trade
Earn on cryptocurrency rate changes with InstaForex
Download MetaTrader 4 and open your first trade
  • Grand Choice
    Contest by
    InstaForex
    InstaForex always strives to help you
    fulfill your biggest dreams.
    JOIN CONTEST

Recommended Stories

GBP/USD Overview – July 14. Keep Calm and Carry On

The GBP/USD currency pair showed a rather significant decline on Friday. Overall, the British currency has been falling for two weeks now, and this is a very important fact that

Paolo Greco 04:33 2025-07-14 UTC+2

EUR/USD Overview – July 14. The Fed's and Trump's Positions Remain Unchanged

The EUR/USD currency pair continued a mild and weak downward movement on Friday. As we have mentioned many times before, the current move is a pure correction, so there

Paolo Greco 04:33 2025-07-14 UTC+2

The Dollar Is Becoming a Risk Currency

In my reviews, I've regularly noted that the decline in demand for the U.S. dollar is not just a matter of price depreciation. We're talking about a currency that

Chin Zhao 00:42 2025-07-14 UTC+2

The Market Believes Trump Will Back Down

What is happening in the financial markets right now can only be described as a paradox, and many economists are noting it. Take the U.S. stock market, for example: initially

Chin Zhao 00:42 2025-07-14 UTC+2

EUR/USD. Weekly Preview: U.S. Inflation, Retail Sales, ZEW Indices, and China's GDP

The upcoming trading week will be marked by U.S. inflation data. Reports on CPI and PPI growth will be released, along with the University of Michigan Consumer Sentiment Index. However

Irina Manzenko 00:41 2025-07-14 UTC+2

U.S. Dollar. Weekly Preview

In the upcoming week in the U.S., reports on inflation and industrial production will be released, along with a few other moderately interesting indicators. The most important one is undoubtedly

Chin Zhao 00:41 2025-07-14 UTC+2

British Pound. Weekly Preview

Over the past two weeks, the pound has declined more than the euro, yet the wave patterns of both instruments are almost identical. Accordingly, a three-wave corrective structure should also

Chin Zhao 00:41 2025-07-14 UTC+2

USD/JPY. Analysis and Forecast

Earlier, U.S. President Donald Trump imposed 25% tariffs on all Japanese exports to the United States, which will take effect on August 1. This move exacerbates Japan's economic challenges, which

Irina Yanina 14:21 2025-07-11 UTC+2

Market fears nothing

The S&P 500 reached another all-time high, with rotation being the hallmark of the US equity market. Investors are aggressively buying up stocks that underperformed in the first half

Marek Petkovich 10:50 2025-07-11 UTC+2

What to Watch for on July 11th? A Fundamental Overview for Beginners

There are very few macroeconomic publications scheduled for Friday, but the volume is still greater than on any previous day this week. The UK will release GDP and industrial production

Paolo Greco 08:50 2025-07-11 UTC+2
Can't speak right now?
Ask your question in the chat.
Widget callback
 

Dear visitor,

Your IP address shows that you are currently located in the USA. If you are a resident of the United States, you are prohibited from using the services of InstaFintech Group including online trading, online transfers, deposit/withdrawal of funds, etc.

If you think you are seeing this message by mistake and your location is not the US, kindly proceed to the website. Otherwise, you must leave the website in order to comply with government restrictions.

Why does your IP address show your location as the USA?

  • - you are using a VPN provided by a hosting company based in the United States;
  • - your IP does not have proper WHOIS records;
  • - an error occurred in the WHOIS geolocation database.

Please confirm whether you are a US resident or not by clicking the relevant button below. If you choose the wrong option, being a US resident, you will not be able to open an account with InstaForex anyway.

We are sorry for any inconvenience caused by this message.