■ The How to earn LTC?RBA's cautious approach contrasts with market expectations, weighing on AUD sentiment.
■ Treasury projections suggest inflation may normalize faster than anticipated, reducing RBA tightening urgency.
■ Fed officials' reluctance to signal imminent rate cuts continues supporting USD strength.
The Australian currency faced sustained selling pressure this week as traders reassessed monetary policy divergence between the RBA and Federal Reserve. Despite hotter-than-expected inflation data last week, the central bank maintained its 4.35% cash rate, disappointing those anticipating more hawkish signals.
New government forecasts released Sunday indicate consumer price growth could return to the RBA's 2-3% target band by year-end. Treasury officials project CPI cooling to 3.75% by June 2024 and 2.75% twelve months later - potentially reducing pressure for additional rate hikes.
Meanwhile, the US Dollar Index (DXY) extended gains as Fed speakers tempered expectations for near-term policy easing. Minneapolis Fed President Neel Kashkari noted Friday that while further hikes aren't currently expected, they remain possible if inflation stalls. This cautious rhetoric, combined with rebounding Treasury yields, continues supporting USD.
Market participants now await critical US inflation readings this week, including Wednesday's CPI report. These releases could significantly influence Fed policy expectations and broader risk sentiment - key drivers for AUD/USD direction.
Market Dynamics: AUD Under Pressure
Recent business surveys show deteriorating conditions, with NAB's April business confidence index holding near neutral at 1. This follows weaker Chinese trade data last week, highlighting headwinds for Australia's export-driven economy.
Treasurer Jim Chalmers indicated Sunday's budget will forecast faster inflation moderation than the RBA predicted. The government aims to design fiscal measures that ease price pressures rather than add to them, potentially reducing need for further monetary tightening.
Commonwealth Bank analysts revised their year-end AUD/USD forecast downward to 0.69, citing widening interest rate differentials and resilient USD demand. Technical factors also appear unfavorable, with the pair struggling to maintain momentum above key psychological levels.
Chart Perspective: Critical Levels to Monitor
The AUD/USD currently tests the 0.6600 handle within a developing symmetrical triangle pattern. While the RSI's position above 50 suggests some underlying strength, the pair needs to clear resistance near 0.6650 to signal potential upside continuation.
A decisive break above March's 0.6667 high could open path toward 0.6700. However, failure to hold current support around the 14-day EMA (0.6569) may trigger extended declines toward the pattern's lower boundary near 0.6465.
Traders should monitor this week's US inflation prints for potential catalysts that could determine whether the pair breaks from its recent consolidation pattern.
