RBA Sees End of Inflation Woes

• The RBA said the worst phase of inflation had passed.

• Australian inflation has eased to 6% since reaching a high of 7.8% last year.

• Market experts and analysts have differing opinions on the likelihood of another rate hike later this year.

The outlook for AUD/USD today is bearish. Australia’s central bank governor said on Friday the worst phase of inflation had passed. But he acknowledged the potential need for further policy strengthening, depending on future data and evolving risks.

Furthermore, outgoing Reserve Bank of Australia Governor Philip Lowe said recent data were in line with the economy’s trajectory towards gradual stabilization. This path aims to moderately reduce inflation without causing a sharp rise in unemployment.

Inflation eased to 6% in the last quarter after hitting a high of 7.8% last year. Inflation is also expected to return to the Reserve Bank’s target range of 2-3% by the end of 2025.

Lowe said policymakers were fine-tuning their strategies after interest rates rose by a whopping 400 basis points since May last year. This approach is necessary because interest rates are already restrictive. Thus, a balance of demand and supply can be achieved.

Notably, this was Lowe’s last appearance in the post, as the government chose not to extend his term beyond mid-September. He will be replaced by Lieutenant Governor Michelle Block.

A vigorous rate hike by the Reserve Bank of Australia has pushed the cash rate up to 4.1%, the highest in a decade. However, it paused rate hikes in July and August to assess whether inflation was performing as expected.

Market experts and analysts have differing opinions on the likelihood of another rate hike later this year.

AUD/USD major events today

Investors will get more inflation data from the US when the Producer Price Index report is released later.

AUD/USD Technical Outlook: Bullish RSI Divergence

On the technical side, AUD/USD is bearish as the price remains below the 30-SMA. Moreover, the RSI is trading below 50, confirming the bearish momentum. The Bulls tried to take the lead when the price crossed the 30-SMA. However, the bears took the lead and pushed the price back below the SMA.

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Nevertheless, the bearish move shows weakness as seen in the bullish RSI divergence. Therefore, if the bears fail to break out of the 0.6500 support, the bulls may try to retake the lead.

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