AUD/USD Price Forecast: Rebounds as RBA’s Bullock clarifies inflation was already high
- AUD/USD bounces back as RBA’s Bullock clarifies that inflation was already high even before the Middle East conflict.
- The RBA raises its OCR by 25 bps to 4.1%, as expected.
- Investors await the Fed’s monetary policy, which is scheduled for Monday.
The AUD/USD pair claws back a majority of its early losses, which arrived after the Reserve Bank of Australia’s (RBA) interest rate decision, and rebounds to near 0.7085, following Governor Michele Bullock’s press conference.
In the policy decision, the RBA announced a back-to-back hike of 25 basis points (bps), as expected, with a tight majority, and pushed the Official Cash Rate (OCR) higher to 4.1%. Five out of nine members-led committee favored an interest rate hike, which signaled investors that the recent surge in global inflation expectations amid rising oil prices was the only driving force behind the rate hike decision.
“The conflict in the Middle East has resulted in sharply higher fuel prices, which, if sustained, will add to inflation,” the RBA said in the monetary policy statement.
However, RBA Governor Bullock clarified in her press conference that inflation in the Australian region was already high as demand was outstripping supply, even before the Middle East conflict, and the cash rate was not high enough to bring inflation back to target, The Age reported.
Meanwhile, the US Dollar (USD) holds onto Monday’s corrective move ahead of the Federal Reserve’s (Fed) monetary policy announcement on Wednesday.
AUD/USD technical analysis
AUD/USD trades higher at around 0.7085 at the press time. The near-term bias is mildly bullish as spot holds above the rising 20-day Exponential Moving Average (EMA) near 0.7060, preserving the short-term uptrend from recent lows. Price action has repeatedly reverted to and bounced from this EMA, underscoring it as dynamic support within a steady grind higher.
The 14-day Relative Strength Index (RSI) in the 40.00-60.00 range signals balanced momentum after easing from the 60.00-80.00 zone, which indicates tempered trend strength while upside potential remains intact.
Initial resistance emerges at around 0.7100 just below last week’s 0.7120–0.7150 cap. A daily close above that band would reopen the path toward the mid-0.72s, followed by 0.7300. On the downside, the March 3 low of 0.6944 is the first support, followed by the February 6 low around 0.6900. A sustained move beneath the latter would strengthen the odds of a deeper corrective phase toward the 0.6770-0.6800 area.
(The technical analysis of this story was written with the help of an AI tool.)
RBA FAQs
The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.
While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.
Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.
Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.
Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.
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