Aussie yawns after inflation remains unchanged at 3.4%

The Australian dollar continues to drift. In the European session, AUD/USD is trading at 0.6529, down 0.06%.

Australian CPI softer than expected

Australia’s inflation rate stayed steady at 3.4% y/y in February, unchanged for a third straight month. This was just shy of the market estimate of 3.5% and is the lowest inflation rate since November 2021. Food prices rose the least since January 2022, which helped offset higher prices for clothing and housing. The core inflation rate, which is more closely watched by the Reserve Bank of Australia, rose 3.9%, down from 4.1% in January.

Inflation has fallen a long way – a year ago, the inflation rate was twice as high, at 6.8%. Still, the RBA’s target range of 2 to 3 percent has not been attained and core inflation has been stubbornly high. The RBA is wary about lowering rates before it is convinced that inflation is sustainable in the target range and won’t rebound if rates are cut. The next meeting is on May 7^th and the RBA decision will likely be impacted by the first-quarter inflation report, which will be released in late April.

The RBA has kept rates unchanged at 4.35% for four straight times. The markets are of the view that the RBA’s tightening cycle is done and have priced in a 68% chance of a rate cut in August and have fully priced in a rate cut at the September meeting. The RBA has taken a more hawkish stance and is yet to signal that it plans to reduce rates.

AUD/USD Technical

• AUD/USD is putting pressure on resistance at 0.6551. Above, there is resistance at 0.6598
• There is support at 0.6467 and 0.6420