AUD/USD consolidates below three-year highs ahead of key CPI
The Australian Dollar remains steady around 0.7060 as markets turn their attention to Wednesday's upcoming inflation report. During its February meeting, the RBA raised interest rates by 25 basis points to 3.85%. Market participants currently estimate a roughly 76% chance of an additional rate hike by May, given that inflation continues to exceed the target range of 2%-3%. January's Australian CPI, expected to be released on Wednesday, is projected to come in at 3.7%, while the introduction of new 15% global tariffs from President Trump adds another layer of market uncertainty.
The AUD/USD made a modest gain of less than 0.1% on Tuesday, hovering within a tight range near 0.7060. For nearly four weeks, the pair has been consolidating within a 150-pip range between 0.7000 and a year-to-date high just below 0.7150. This period has been characterized by a cluster of small-bodied candles and doji formations, reflecting market indecision or caution ahead of Wednesday's Consumer Price Index (CPI) release.
February saw the Reserve Bank of Australia (RBA) raise its interest rate to 3.85%, marking its first hike since November 2023. This move highlighted the Board's concerns over resurging capacity pressures and stronger-than-anticipated private demand growth. The release of Australia's January CPI data on Wednesday will serve as the next key indicator for the RBA's hawkish stance. Headline inflation is expected to show only a slight decline to 3.7% from 3.8%, while the trimmed mean CPI is forecasted to remain unchanged at 3.3%.
On the USD front, the Supreme Court's decision last Friday overturning Trump's previous tariff policies led to the announcement of a new 15% global tariff, dampening risk appetite. Meanwhile, US consumer confidence edged up to 91.2 in February from 89, although the expectations component has remained below the recession-warning threshold of 80 for 13 consecutive months.
Sideways consolidation persists below the 0.7150 level, with the Stochastic indicator hovering in neutral territory
The pair remains comfortably above the ascending 50-day Exponential Moving Average (EMA) near 0.6890 and the 200-day EMA around 0.6660, reaffirming the ongoing bullish trend that has persisted since the January low of approximately 0.6590. The Stochastic Oscillator has retreated from overbought levels and is now moving sideways within neutral territory, indicating a slowdown in momentum without signaling a bearish reversal. A decisive move above the 0.7150 zone could pave the way toward the psychological resistance at 0.7200, while a drop below the 0.7000 mark would redirect attention to the 50-day EMA level.
The Australian dollar climbed against the US dollar this morning in anticipation of forthcoming inflation data.
What happened:-
The AUD/USD currency pair reached levels close to three-year highs, bolstered by growing expectations of a more hawkish monetary policy stance from the Reserve Bank of Australia. This rise occurred despite the US dollar showing strength earlier today.
Why it matters:-
Over the weekend, US President Donald Trump increased tariffs on all nations from 10% to 15%, following a Supreme Court ruling deeming his previous tariffs illegal. The decision sparked a strong reaction from the President, who declared that the new tariffs would take effect immediately.
He issued a warning that countries attempting to undermine or disregard existing trade agreements following the latest Supreme Court decision could face increased tariffs.
AUD/USD climbs to its highest level in nearly three years
These recent developments applied downward pressure on the US dollar on Monday, which in turn provided some support to the AUD/USD currency pair. While the greenback managed to recover part of its losses earlier today, investors remain cautious about how the new tariff measures could impact the US economy.
Attention now shifts to Australia’s upcoming consumer price index (CPI) data, set to be released on Wednesday. The figures are anticipated to show a slight decrease in the annual inflation rate, easing to 3.7% in January from 3.8% recorded in December.
Markets have already factored in expectations of the Reserve Bank of Australia (RBA) raising its key interest rate by 25 basis points to 3.85% by June.
However, a recovery in the US dollar earlier today applied some pressure on the AUD/USD currency pair. The US Dollar Index, which tracks the performance of the greenback against a basket of major currencies, crept up to 97.77 during the morning session.
As of this morning, the AUD/USD pair gained roughly 0.2%, trading around 0.7068, while the S&P/ASX 200 index dipped slightly by 0.1%, settling at 9,014.40.
The AUD/USD pair climbs to its highest level in nearly three years
What to watch:-
Upcoming events to watch include the release of data on the inflation rate and construction activity, scheduled for 0430 UAE Time on Wednesday. Core inflation is anticipated to stay at 3.3%, marking the fifth consecutive month above the Reserve Bank of Australia’s target range of 2%-3%. Meanwhile, total construction work in Australia, which declined by 0.7% in the third quarter, is forecasted to grow by 0.8% in the fourth quarter.
Investors will also keep an eye on tariff-related developments from the United States, as these are expected to have a notable influence on the AUD/USD currency pair. Additionally, RBA Governor Michele Bullock’s address at a Melbourne University event on Wednesday will be closely watched, as any indication of a hawkish stance could strengthen the Australian dollar.