On Tuesday, the Reserve Bank of Australia released its latest quarterly forecast, adjusting its expectations for GDP, unemployment rate, and core inflation. Although recent data suggests a slowdown in GDP growth for the second quarter, the economic outlook remains challenging. Rising interest rates have pressured the Australian economy, with quarter-on-quarter growth significantly slowing since the beginning of 2023. The economy barely avoided negative growth in the first quarter of 2024, growing by just 0.1%.
Governor Lowe mentioned that the possibility of a rate hike was discussed at Tuesday’s meeting, reducing market expectations of a rate cut and strengthening the Australian dollar. Although the Reserve Bank considered the evaluation of inflation and economic risks as "broadly balanced," the primary goal remains to control the inflation rate within the 2%-3% range in the medium term. According to forecasts, the inflation rate in December is expected to be 3%, possibly rising to 3.7% by December 2025.
In the context of continuously falling prices, the Reserve Bank may continue to discuss the possibility of raising rates, even though the market still expects a 25 basis point rate cut by the end of the year.
Aussie Dollar Struggles to Maintain Gains Against USD; Future Depends on US CPI Data
After significant fluctuations on Monday, the Australian dollar sharply rebounded against the US dollar. Lowe acknowledged that the rate hike helped the Australian dollar recover. However, the currency pair encountered resistance during its upward movement, currently constrained by the resistance level at 0.6580, limiting further upward attempts.
Additionally, the 200-day simple moving average (SMA) above 0.6580 is also an obstacle for the Australian dollar's further rise. The Aussie may enter a consolidation phase, with future movements likely depending on whether next week’s US CPI data continues to indicate a downward trend. The current support level lies around 0.6460.
The British pound sharply retreated from Monday’s high against the Australian dollar. Due to intense market fluctuations, this currency pair fell back above 2.000 before the close. Last month, the Bank of England unexpectedly cut rates, which intensified bearish sentiment in the market, making the pound appear quite vulnerable.
Currently, the pound's downward trend against the Australian dollar is testing the June high of 1.9350. Technically, the 200-day moving average indicates the next support level at 1.9185, while the resistance level is at 1.9570, the high from March 2024.
An interesting divergence has emerged between the Reserve Bank of Australia and the market. The Reserve Bank expects no rate cut this year, while the bond market reflected the possibility of up to two rate cuts (totaling 50 basis points) amid Monday’s panic, which has since been adjusted to an expectation of 19 basis points.
As event risks gradually fade over the next few days and the following week, market focus will shift to US July CPI data. The current trend suggests that the disinflationary process may continue.
As of 01:29 Beijing time, the AUD/USD was at 0.6585/86, up 1.04%. The GBP/AUD was at 1.9351/55, down 0.56%.
