RBA Holds Rates; Aussie Government Focuses on Housing and Debt Reduction

The Reserve Bank of Australia (RBA) decided to keep interest rates steady recently, expressing concern that inflation was slowing down less quickly than anticipated. The decision came after Australian consumer prices rose more than expected in the first quarter, particularly in service costs, which have been a persistent concern for the RBA due to tight labor conditions.

Despite the recent inflationary pressures, the RBA reiterated its forecast that inflation would return to its target range by mid-2025. However, markets were surprised by the RBA's dovish stance, as some had expected a more hawkish tone following the strong inflation data.

Meanwhile, the Australian government announced plans to address housing challenges by investing in skilled workers in the construction sector. This initiative aims to increase the supply of homes to tackle rising rents and housing affordability issues.

The government also highlighted its efforts to reduce projected gross debt, forecasting a lower peak in debt ratios compared to previous estimates. This reduction is anticipated to save approximately $80 billion in interest payments over the next decade. Treasurer Jim Chalmers highlighted these efforts, noting that the upcoming budget is likely to mark the first consecutive surpluses in almost twenty years.

However, economic growth forecasts have been revised downward due to global economic uncertainty, persistent high inflation, and higher interest rates. Treasurer Jim Chalmers emphasized that the budget would prioritize measures to combat inflation and ease cost-of-living pressures while maintaining a responsible fiscal path.

Market participants maintained a cautious stance on Monday as they awaited U.S. inflation data to assess the likelihood of interest rate cuts. Expectations for rate reductions increased following a softer-than-expected U.S. payrolls report for April and a Federal Reserve policy announcement. While some officials suggested the Fed could remain on track to cut rates, others expressed uncertainty about the need for further easing.

A survey revealing a jump in consumers' inflation expectations further complicated the discussion. Despite recent inflationary pressures, economists anticipate a moderation in consumer prices in April. U.S. consumer sentiment dipped in May due to concerns about the cost of living and unemployment.

Meanwhile, the U.S. federal budget surplus in April increased compared to the previous year, driven by higher tax receipts offsetting increased outlays, particularly interest costs on the national debt.

Investors will closely monitor upcoming inflation readings, including the producer price index (PPI) and consumer price index (CPI), along with retail sales data. Fed Chair Jerome Powell is also scheduled to speak at a meeting of the Foreign Bankers' Association in Amsterdam on Tuesday. Consequently, the AUD/USD currency pair is prone to fluctuate within its current range. However, it is anticipated that long-term appreciation of the Australian dollar will be constrained by the contrasting economic performances of the two countries, leading to differing returns.

Data for Technical Analysis (1H) CFD AUD/USD

Resistance : 0.6600, 0.6604, 0.6609

Support : 0.6590, 0.6586, 0.6581

1H Outlook

Source: TradingView

Buy/Long 1 If the support at the price range 0.6580 - 0.6590 is touched, but the support at 0.6590 cannot be broken, the TP may be set around 0.6604 and the SL around 0.6575, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6600 - 0.6610, TP may be set around 0.6620 and SL around 0.6585, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6600 - 0.6610 is touched, but the resistance at 0.6600 cannot be broken, the TP may be set around 0.6590 and the SL around 0.6615, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6580 - 0.6590, TP may be set around 0.6573 and SL around 0.6605, or up to the risk appetite.       

Pivot Points May 13, 2024 03:00AM GMT