RBA Governor Reiterates Versatile Approach Amid Two-Sided Risks
RBA Governor Michele Bullock attended a question and answers session in Armidale where she maintained the focus on inflation as the number one priority despite rising economic concerns, lifting the Aussie in the process.
On Tuesday, the RBA released its updated quarterly forecasts where it lifted its GDP, unemployment, and core inflation outlooks. This is despite recent indications suggesting to the RBA that Q2 GDP is likely to be subdued. Elevated interest rates have had a negative impact on the Australian economy, contributing to a notable decline in quarter-on-quarter growth since the start of 2023. In Q1 2024, the economy narrowly avoided a negative print by posting growth of 0.1% compared to Q4 of 2023.
Australian GDP Growth Rate (Quarter-on-Quarter)
Source: Tradingeconomics, prepared by Richard Snow
Bullock mentioned the RBA considered a rate hike on Tuesday, sending rate cut odds lower and strengthening the Aussie dollar. While the RBA assess the risks around inflation and the economy as ‘broadly balanced’, the overarching focus remains on getting inflation down to the 2%-3% target over the medium-term. According to RBA forecasts inflation (CPI) is expected to tag 3% in December before accelerating to 3.7% in December 2025.
In the absence of consistently lower prices, the RBA is likely to continue discussing the potential for rate hikes despite the market still pricing in a 25-basis point (bps) cut before the end of the year.
AUD/USD Correction Finds Resistance
AUD/USD has recovered a great deal since Monday’s global bout of volatility with Bullocks rate hike admission helping the Aussie recover lost ground. The degree to which the pair can recover appears to be limited by the nearest level of resistance at 0.6580 which has repelled attempts to trade higher.
An additional inhibitor appears via the 200-day simple moving average (SMA) which appears just above the 0.6580 level. The Aussie has the potential to consolidate from here with the next move likely dependent on whether US CPI can maintain a downward trajectory next week. Support appears at 0.6460.
AUD/USD Daily Chart
Source: TradingView, prepared by Richard Snow
