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Australian Dollar Outlook: The RBA and the Fed Move into View

Australian Dollar Outlook: The RBA and the Fed Move into View

Daniel McCarthy, Strategist

Australian Dollar Forecast: Neutral

  • The Australian Dollar slipped toward the bottom end of the range last week
  • Market sentiment and risk appetite appear to be skittish with mixed messages
  • The RBA and Fed decisions await. A deviation from the script could hit AUD/USD
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The Australian Dollar dipped lower last week in the aftermath of CPI data and a macro trading environment with pockets of uncertainty. The week ahead will see monetary policy meetings at the RBA and Federal Reserve and might be pivotal for AUD/USD direction.

Australian headline CPI to the end of the first quarter was 7.0% year-on-year rather than the 6.9% anticipated and 7.8% previously. The RBA’s preferred measure of trimmed mean inflation for the same period was 6.6% instead of the 6.7% forecast and 6.9% prior.

Although there has been a deceleration in price pressures, they remain persistently high and well above the bank’s mandated target of 2 – 3 % over the cycle.

The intonation from the meeting minutes of the RBA’s April meeting was that another rate hike could happen in May. Market expectations are for no change on Tuesday and if the bank does tighten policy, it may underpin the Aussie Dollar in the short term.

Then on Wednesday, the Fed will gather at the Federal Open Market Committee (FOMC) meeting to decide on its target rate and the market estimates a 25 basis point lift there.

If either central bank deviates from the market forecasts, then an uptick in volatility in AUD/USD would be a reasonable assumption.

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Elsewhere, market sentiment was slightly mixed going into the weekend with the Dow, S&P 500 and Nasdaq finishing in the green over the week, while the Russell 2000 and the ASX 200 ended lower.

The issues surrounding First Republic continue to swirl and don’t appear to be resolved with the market openly discussing the possibility of the Federal Deposit Insurance Corporation (FDIC) making a move to shore up the embattled bank.

China’s recovery continues to be questioned and this has been a factor that has undermined the iron ore price after it plunged over 10% last week on the Singapore futures exchange. At the same time though, copper and gold have been steady.

Looking ahead, the RBA and Fed conclaves will be the focus and any unexpected moves in interest rate disparity might lead to notable moves in AUD/USD. Particularly so if it impacts further out on the yield curve.



Chart created in TradingView


Although AUD/USD has been in a 2-month range of 0.6565 – 0.6806, the price is now below all short, medium and long-term daily Simple Moving Averages (SMA) and this may suggest that bearish momentum could be emerging.

There is a potential resistance zone in the 0.6780 – 0.6810 area where there are a number of previous peaks and the 100- and 260-day SMAs.

On the downside, support may lie at the previous low of 0.6565 or the breakpoint of 0.6547.


Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for

Please contact Daniel via @DanMcCarthyFX on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.