Where Is AUD/USD Headed After RBA’s Lowe and May Inflation?

AUD/USD was trading in a range for about three months since February, with the top at around 0.68 and the bottom below 0.66. Although, the range was broken to the downside last week, as the USD continued to gain momentum since early May and now it seems like the bottom of the range might have turned into resistance.

During Tuesday’s trading session, the Aussie experienced an initial decline but later displayed signs of resilience as the USD retreated lower. Buyers were attempting to test the previous support zone which carries considerable “market memory” with it, but they failed to push the price above it and AUD/USD reversed back down as we headed toward the speech from the Reserve Bank of Australia Lowe tonight and the CPI consumer inflation report. Although we refrained from selling this pair and instead opened a sell NZD/USD signal.

Australian CPI Inflation Report for May

• Australian CPI for April 6.8% YoY v 6.4% expected
• March CPI inflation YoY was 6.3%

The ABS adds:

• The annual movement for the monthly CPI excluding volatile items and holiday travel rose 6.5% in April, down from 6.9% in March. This series excludes Fruit and vegetables, Automotive fuel and Holiday travel and accommodation.

The ‘excluding volatile items’ coming in lower is a bit of relief in this report.

RBA Governor Lowe Speech

• Lowe says wage growth has not been a source of inflation
• RBA is in data-dependent mode
• Monetary policy in restrivice territory
• There is not a single variable that drives RBA policy decisions
• Inflation expectations are well anchored, can’t take this for granted
• RBA is serious about inflation target, want also to preserve labour market gains
• If inflation gets entrenched it would lad to higher interest rates and higher unemployment

AUD/USD Live Chart