The AUD/USD exchange rate has retreated in the past few days ahead of the upcoming Reserve Bank of Australia (RBA). It was trading at 0.6278, down by almost 10% from its highest point in 2024. It has also pulled back by almost 2% from its highest point this year.
RBA interest rate decision
The AUD/USD pair has remained on edge as the market waited for the upcoming RBA interest rate decision and Donald Trump’s Liberation Day tariffs.
The RBA has emerged as one of the most hawkish central banks in the developed world in this cycle.
It resisted pressure to cut interest rates in 2024 even as the economic growth remained on edge and inflation dropped.
The central bank delivered the first interest rate cut in its first meeting of the year, and officials remained hawkish. They signaled that they would wait and see before cutting rates again this year, leading to speculation that they would cut again in May.
Recent economic numbers have raised bets that the RBA may decide to cut rates this week. A preliminary report by the statistics agency showed that prices cooled in February.
The headline consumer price index (CPI) was flat in February from January. It then dropped slightly to 2.4% from the previous 2.5%.
The trimmed mean CPI rose by 2.7%, slowing from 2.8% in January. While these numbers are higher than the RBA’s target of 2.0%, they are moving in the right direction. They are also lower than in the US and other countries that are cutting interest rates.
Meanwhile, Australia’s unemployment rate ticked up in January as the job creation trajectory eased. The jobless rate rose to 4.1% as the economy added 44,300 jobs, lower than the previous month’s 60,000.
Donald Trump’s Liberation Day tariffs
Some analysts call for the RBA to cut rates because of the ongoing concerns about the global economy. Donald Trump announced a 25% tariff on automakers last week. He is also expected to have his Liberation Day on Wednesday, when he unveils his reciprocal tariffs.
To a large extent, Australia should be spared from these tariffs because the US has a trade surplus with the country. However, Australia may be affected because it does a lot of business with countries like China which may be hit the hardest.
These tariffs may push the Federal Reserve between a rock and a hard place because of stagflation in the US. Stagflation is a situation where a country has a high inflation and slow economic growth.
Stagflation is a highly difficult situation to deal with since an action to solve inflation often hurts the economic growth. Similarly, Federal Reserve cuts to boost growth often leads to higher inflation.
AUD/USD technical analysis
AUD/USD chart by TradingView
The four-hour chart shows that the AUD/USD exchange rate has remained under pressure in the past few days. It has dropped from a high of 0.6391, its highest swing on March 18.
The pair has formed a head and shoulders pattern, a popular bearish sign in technical analysis. It is slightly above the neckline at 0.6267.
It has moved below the 50-period Exponential Moving Average (EMA). The MACD and the Relative Strength Index (RSI) are all pointing downwards.
Therefore, the pair will likely continue falling as sellers target the key support at 0.6187, down by 1.50% below the current level. This price is its lowest level on March 4. A move above the resistance point at 0.6315 will invalidate the bearish view.
The post AUD/USD forecast: forms H&S pattern ahead of RBA decision appeared first on Invezz