The Australian Dollar (AUD) experienced a notable decline following the release of softer-than-expected April Consumer Price Index (CPI) data, which has reinforced expectations that the Reserve Bank of Australia (RBA) will pause its interest rate hikes. According to Commerzbank’s Volkmar Baur, the RBA has already raised rates three times in recent months, but the latest inflation figures support a pause, especially as prices fell by 0.1% month-over-month in April, driven by a 7% drop in transportation costs after a 33% rise in March. This led to the annual inflation rate falling from 4.6% to 4.2%, though it remains above the RBA’s 2-3% target. The trimmed-mean inflation, the RBA’s preferred measure, rose slightly month-over-month but averaged 3.1% annualized over the past three months, only slightly above target, which should give the RBA confidence to hold rates and monitor external developments such as the situation in Iran [1].
In the currency markets, the AUD/NZD pair dropped sharply, losing more than 0.8% on Wednesday and hitting session lows at 1.2173. This move was attributed to both the softer Australian inflation data and a hawkish hold from the Reserve Bank of New Zealand (RBNZ). The RBNZ left rates unchanged, but a split monetary policy committee and comments from Governor Anna Breman, who used her casting vote to hold, indicated that further Official Cash Rate (OCR) increases are likely at upcoming meetings due to concerns about second-round inflation effects [2].
The weak Australian data has prompted investors to scale back expectations for an RBA rate hike in August, while technical analysis suggests a potential trend shift in AUD/NZD, with the pair showing a bearish engulfing candle and a possible double top at the 1.2285 area. The 4-hour Relative Strength Index (RSI) has dropped to the mid-30s, and the MACD indicator has turned slightly negative, both pointing to persistent downside pressure. Immediate support is seen at the 1.2125-1.2135 area, with further downside targets below the 1.2000 psychological level [2].
On a broader basis, the Australian Dollar was the strongest against the Canadian Dollar but showed weakness against other major currencies, including a 0.65% decline against the USD and a 0.11% drop versus the NZD [2].
CONCLUSION
Softer-than-expected Australian inflation data has reinforced expectations for an RBA pause, leading to a sharp decline in the AUD, particularly against the NZD. The market is now focused on the divergent policy outlooks between the RBA and RBNZ, with technical indicators suggesting further downside risk for AUD/NZD.