AUD/USD Forecast: Hawkish RBA Cut Keeps Aussie Dollar Bulls in Play

Summary

The Reserve Bank of Australia (RBA) has implemented a widely anticipated 25 basis point (bp) cut to the cash rate, reducing it to 4.10%. This marks the first rate cut since November 2020. Despite the cut, the RBA has refrained from indicating a clear bias towards further easing, citing inflation risks and a robust labor market as reasons for caution.

Market Reaction and Rate Expectations

Prior to the announcement, markets had priced in an 87% probability of the rate cut. However, the RBA's statement did not suggest a definitive easing path, instead highlighting "risks on both sides" of the inflation outlook. The RBA warned that excessive easing could stall disinflation, leading to inflation settling above the target range's midpoint.

Hawkish Tone Amid Rate Cut

While acknowledging some easing of inflation risks, the RBA noted that the labor market remains unexpectedly strong, indicating tighter conditions than previously anticipated. This has led to a reassessment of future rate cuts, with markets now pricing in only two additional cuts for the year, the next of which is expected in May.

Technical Analysis of AUD/USD

Following the RBA's decision, the AUD/USD pair has shown minimal volatility, remaining above a critical support level at 0.6337. A break below this level could signal a bearish trend, completing a three-candle evening star pattern, which is often indicative of market peaks. Should the support at 0.6337 hold, a retest of the October 2022 uptrend near 0.6400 is plausible, which may act as resistance if breached.

Key Levels to Watch

Traders should monitor the following levels:

• Support at 0.6337
• Next support levels at 0.6300 (50DMA) and 0.6238
• Resistance at 0.6400, with potential targets at 0.6450 and 0.6550 if bullish momentum continues

Momentum Indicators

Current momentum indicators, such as the RSI (14) and MACD, remain bullish, suggesting an upward bias for the AUD/USD pair in the near term.