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We recognized in February that inflation was too highThe economy is in quite a good position, policy judgments are difficultHave to be patient in judging policyThere’s been some weakness in the Australian dollar after her comments. It looks like she doesn’t want to overreact to near-term data and take a more patient approach.As a reminder, the RBA hiked the Cash Rate by 25 bps at the last meeting bringing it back to 3.85%. The central bank delivered a hawkish surprise as it signalled two more rate hikes by year-end compared to just one expected by the market at the time.Today, we got the monthly Australia’s CPI and the Trimmed Mean Y/Y beat expectations coming in at 3.4% vs 3.3% prior. The data triggered a hawkish reaction with the Australian dollar rallying across the board on higher March rate hike odds (24%).After Bullock’s comments, traders pared back their bets, with the probabilities of a back-to-back rate hike in March now standing at 13%. The RBA focuses mainly on the quarterly CPI, which is due in April. If the data continues to surprise to the upside, a rate hike in May will be a guarantee.
This article was written by Giuseppe Dellamotta at investinglive.com.
💡 DMK Insight
The RBA’s cautious stance on inflation is shaking the Aussie dollar, and here’s why that matters: With the Australian dollar showing weakness following recent comments, traders need to consider how the RBA’s patience could impact monetary policy. The central bank’s reluctance to overreact to short-term data suggests a longer-term view on inflation, which could lead to a more stable interest rate environment. This could attract investors looking for less volatility, but it also means the Aussie might struggle against stronger currencies if global sentiment shifts. Keep an eye on key levels for the AUD/USD pair; a break below recent lows could signal further downside. Additionally, watch for any shifts in commodity prices, as Australia’s economy is heavily tied to its exports. If commodities rally, it could provide some support for the Aussie, but if inflation remains stubborn, the RBA might have to pivot sooner than expected, creating volatility. Traders should monitor the upcoming inflation data closely, as any surprises could lead to rapid movements in the forex markets, particularly for the AUD.
📮 Takeaway
Watch the AUD/USD closely; a break below recent lows could indicate further weakness if inflation data surprises negatively.
