RBA Signals Peak Inflation

The Australian Dollar has been lower over the European morning on Tuesday following the latest RBA rates meeting overnight. The RBA was seen hiking rates by a further .25% as expected, taking the headline cash rate there up to 3.6%. However, it was the bank’s comments around inflation that seemed to draw the most attention.

Inflation Peaked

The RBA noted that the monthly CPI indicator suggested that inflation had now peaked (dropped by 1% last month) and consequently, any further rate moves will be data dependant. With the bank having pivoted on rates at the end of last year in line with falling inflation, the comments have been taken as a signal that the RBA will look to slow and very quickly pause its tightening campaign in line with the fresh fall in inflation. An unexpected uptick in January CPI had caused some uncertainty, stoking fresh, hawkish RBA expectations. However, with inflation now seen falling back, these hawkish expectations have subsided.

Market Reaction

AUD has been well sold across the board with notable losses against CHF and EUR. NZD is also performing well against AUD given the market’s hawkish RBNZ expectations. The RBNZ recently reaffirmed its commitment to pressing ahead with further tightening this year, opening up divergence between itself and the RBA which should keep AUDNZD pressured lower near-term.

Technical Views

AUDNZD

The failure in AUDNZD around the 1.10 level has seen the pair reversing sharply lower. Price has broken down through the bull channel off last year’s lows and through support at 1.0954. While the sell off is currently stalled at the 1.0750 level, the focus is on a break lower, in line with bearish momentum studies readings.