AUD/USD treads water near 0.7000 ahead of make-or-break CPI
- The Australian Dollar remains flat for the week as markets await Wednesday's February inflation data, which could cement or challenge expectations for a third consecutive RBA rate hike in May.
- The RBA hiked to 4.10% on March 17 in a back-to-back increase; all four major Australian banks now forecast another 25 basis points in May to 4.35%, with the February CPI the key data point that could confirm or delay the move.
- Friday's final US UoM consumer sentiment reading (consensus 53.8 vs 55.5 prior) and inflation expectations data will provide an update on US demand conditions and the Fed's inflation outlook.
AUD/USD is essentially flat for the trading week, hovering close to 0.7000 after a volatile few sessions that saw the pair swing from above 0.7120 to about 0.6910 and back again. The pair remains caught between two opposing forces: domestic rate hike expectations supporting the Aussie, and broad US Dollar safe-haven demand keeping a lid on any sustained recovery.
Wednesday's February Consumer Price Index (CPI) release at 00:30 GMT is the near-term catalyst. Headline inflation is expected to hold at 3.8% YoY with a flat MoM reading, while the Reserve Bank of Australia's (RBA) preferred trimmed mean measure is forecast to hold at 3.4% YoY. A reading at or above consensus would reinforce the case for a third consecutive rate hike at the May 5 meeting, where all four major banks already expect 25 basis points to 4.35%.
A softer print, particularly on trimmed mean, could give the RBA room to pause and would likely take the Aussie lower. Importantly, this data was collected before the worst of the Strait of Hormuz energy shock fully hit domestic fuel prices, meaning it represents a floor for inflationary pressures rather than a ceiling. Governor Michele Bullock has stressed that "every meeting is live" and that the board would not wait for the full quarterly CPI (due late April) before acting if needed. The RBA's own February forecasts project trimmed mean inflation peaking at 3.7% by mid-2026 and not returning to the 2% to 3% target range until early 2027.
On the US side, the week's remaining data includes Thursday's jobless claims (210K consensus vs 205K prior) and a heavy slate of Federal Reserve (Fed) speakers, followed by Friday's final University of Michigan (UoM) consumer sentiment reading for March (consensus 53.8 vs 55.5 prior) and the closely watched one-year and five-year inflation expectations.
AUD/USD hourly chart
Technical Analysis
In the 1-hour chart, AUD/USD trades at 0.6996. The near-term bias is mildly bearish as price holds below the descending 200-period exponential moving average near 0.7033, keeping the pair capped after repeated failures to sustain gains above 0.7000 earlier in the session. The latest Stochastic RSI recovery from oversold territory, now rising through the mid-range, signals easing downside momentum rather than a clear bullish reversal, suggesting rallies are likely to face selling pressure while the pair remains under the long-term average.
Initial resistance aligns at 0.7000, where recent intraday highs and psychological supply converge, followed by a stronger barrier at the 200-EMA around 0.7033, which defines the upper boundary of the current corrective phase. On the downside, immediate support emerges at 0.6965 from the recent cluster of lows, with a break exposing 0.6950 as the next bearish target. As long as spot holds between 0.6965 support and 0.7033 resistance, the pair risks further probing of lower levels if momentum fails to drive a sustained move above 0.7000.
(The technical analysis of this story was written with the help of an AI tool.)
Australian Dollar FAQs
One of the most significant factors for the Australian Dollar (AUD) is the level of interest rates set by the Reserve Bank of Australia (RBA). Because Australia is a resource-rich country another key driver is the price of its biggest export, Iron Ore. The health of the Chinese economy, its largest trading partner, is a factor, as well as inflation in Australia, its growth rate and Trade Balance. Market sentiment – whether investors are taking on more risky assets (risk-on) or seeking safe-havens (risk-off) – is also a factor, with risk-on positive for AUD.
The Reserve Bank of Australia (RBA) influences the Australian Dollar (AUD) by setting the level of interest rates that Australian banks can lend to each other. This influences the level of interest rates in the economy as a whole. The main goal of the RBA is to maintain a stable inflation rate of 2-3% by adjusting interest rates up or down. Relatively high interest rates compared to other major central banks support the AUD, and the opposite for relatively low. The RBA can also use quantitative easing and tightening to influence credit conditions, with the former AUD-negative and the latter AUD-positive.
China is Australia’s largest trading partner so the health of the Chinese economy is a major influence on the value of the Australian Dollar (AUD). When the Chinese economy is doing well it purchases more raw materials, goods and services from Australia, lifting demand for the AUD, and pushing up its value. The opposite is the case when the Chinese economy is not growing as fast as expected. Positive or negative surprises in Chinese growth data, therefore, often have a direct impact on the Australian Dollar and its pairs.
Iron Ore is Australia’s largest export, accounting for $118 billion a year according to data from 2021, with China as its primary destination. The price of Iron Ore, therefore, can be a driver of the Australian Dollar. Generally, if the price of Iron Ore rises, AUD also goes up, as aggregate demand for the currency increases. The opposite is the case if the price of Iron Ore falls. Higher Iron Ore prices also tend to result in a greater likelihood of a positive Trade Balance for Australia, which is also positive of the AUD.
The Trade Balance, which is the difference between what a country earns from its exports versus what it pays for its imports, is another factor that can influence the value of the Australian Dollar. If Australia produces highly sought after exports, then its currency will gain in value purely from the surplus demand created from foreign buyers seeking to purchase its exports versus what it spends to purchase imports. Therefore, a positive net Trade Balance strengthens the AUD, with the opposite effect if the Trade Balance is negative.
Nothing in this material constitutes investment advice, personal recommendation, investment research, an offer, or a solicitation to buy or sell any financial instrument. The content has been prepared without consideration of your individual investment objectives, financial situation, or needs, and should not be treated as such.
Past performance is not a reliable indicator of future performance and/or results. Forward-looking scenarios or forecasts are not a guarantee of future performance. Actual results may differ materially from those anticipated.
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