Low inflation in Australia weakens AUDCAD

28 February 2024 64
Low inflation in Australia weakens AUDCAD

Australian inflation remained flat in January, stoking hopes the Reserve Bank may bring forward interest rate cuts later this year. 

 

The consumer price index rose 3.4% compared to a year earlier, which is below economists' estimates of 3.6% and unchanged from December last year. That's what data from the Australian Bureau of Statistics showed this morning.

 

Excluding volatile items, annual growth was 4.1% compared to December's 4.2% and still well above the RBA's target range of 2-3%. That said, Bloomberg experts expect that continued upward pressure from home rents, insurance and utility bills could keep inflation high.

 

Earlier this month, the regulator considered hiking rates further as it found that aggregate demand continues to exceed the economy's supply capacity, raising the risk that inflation will not return to the target level within a reasonable timeframe.

 

Against this backdrop, the RBA decided to keep rates unchanged given that there are signs of a broader economic slowdown that is easing price pressures. Economists forecast that the RBA will start the monetary easing cycle as early as August, leading to a weakening of the Australian currency, including AUDCAD.

 

The RBA's own forecasts show that inflation will return to the target level only in December 2025.

 

As for the technical analysis, the AUDCAD pair is moving towards the level of 0.879. The pair is likely to overcome the moving average of the Bollinger Bands indicator on the daily timeframe.

 

The overall recommendation is to sell AUDCAD. The selling target is the level of 0.8790. A loss could be fixed at the level of 0.8880.


This content is for informational purposes only and is not intended to be investing advice.

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