Australia's Slow Growth, Inflation Challenges Keep RBA Cautious; Rate Cuts Seen in 2025

Australia’s economy faces persistent challenges, with slow growth and sticky inflation prompting the Reserve Bank of Australia (RBA) to maintain its 4.35% cash rate. The RBA remains cautious about rate cuts despite easing headline inflation, as core inflation persists at 3.5%, above its 2%-3% target range. Economists expect the first rate cut in Q2 2025, with financial markets pricing it for May.

In Q3, GDP rose only 0.3% quarterly and 0.8% annually, the weakest pace since the pandemic, driven mainly by government spending, while household consumption stagnated amid high borrowing costs. Public investment surged, especially in infrastructure and defense, offsetting weak private sector performance. Export prices fell due to slowing global demand, while domestic price growth softened. Analysts suggest that sluggish economic conditions could lead to earlier rate cuts if growth fails to rebound.

Australia's labor market remains tight, with unemployment at 4.1%, sustaining wage pressures and complicating inflation control. Policymakers prioritize employment gains while managing inflation, contrasting with peers like New Zealand, which has already begun easing monetary policy. Retail sales showed signs of improvement in October, boosted by tax cuts and consumer confidence, but sustained growth remains uncertain.

Looking ahead, the RBA anticipates inflation returning to target by 2026, with further moderation in economic conditions expected to influence its monetary policy trajectory.

The U.S. labor market showed signs of cooling, with initial unemployment claims rising to 224,000 for the week ending November 30, up from the previous week's revised 215,000 and exceeding forecasts of 215,000. This indicates steady easing in labor market conditions, though continued claims fell by 25,000 to 1.871 million. Claims have retreated from October's 18-month high, attributed to hurricanes and strikes, reflecting November's employment recovery. Despite these improvements, slower hiring is prolonging unemployment benefit durations, potentially keeping the jobless rate above 4.0%. Economists believe this could prompt the Federal Reserve to cut interest rates this month, even as inflation remains above the 2% target.

In trade, the U.S. deficit narrowed significantly in October, dropping 11.9% to $73.8 billion from September's revised $83.8 billion. This sharp decline, driven by the largest import contraction since late 2022, may bolster economic growth in Q4. This may result in the AUD/USD currency pair continuing to trade within its current range during this period.

Data for Technical Analysis (30Min) CFD AUD/USD

Resistance : 0.6441, 0.6444, 0.6448

Support : 0.6433, 0.6430, 0.6426

30Min Outlook  

Source: TradingView

Buy/Long 1 If the support at the price range 0.6428 - 0.6433 is touched, but the support at 0.6433 cannot be broken, the TP may be set around 0.6443 and the SL around 0.6426, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6441 - 0.6446, TP may be set around 0.6456 and SL around 0.6431, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6441 - 0.6446 is touched, but the resistance at 0.6441 cannot be broken, the TP may be set around 0.6432 and the SL around 0.6448, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6428 - 0.6433, TP may be set around 0.6416 and SL around 0.6443, or up to the risk appetite.       

Pivot Points Dec 6, 2024 03:30AM GMT