Australian dollar extends gains, Australian inflation next

The Australian dollar has posted gains for a second straight day. In the North American session, AUD/USD is trading at 0.6304, up 0.30%.

Australian CPI expected to remain at 2.5%

Australia releases the inflation report early on Wednesday.
Headline inflation is expected to remain unchanged at 2.5% y/y. Inflation is at its highest level since August 2024 and the Reserve Bank of Australia will be keeping a keen eye on the direction of inflation.

The RBA took the plunge in February and cut the cash rate by a quarter point to 4.10%, marking the first rate cut in over four years. The central bank held rates for over a year as policymakers were concerned about the upside risk of inflation, even as the Australian economy remains weak.

The RBA's easing cycle could be short-lived and a series of rate cuts throughout the year, as is the case with other major central banks. We could see as few as two rate cuts in 2025, depending largely on the direction of inflation. The RBA remains concerned about the upside risk of inflation, a strong labor market and uncertainty over the US administration's tariff policy.

The US Federal Reserve kept the fed funds target rate on hold last week and policymakers are concerned about the upside risk of inflation. Fed Chair Jerome Powell noted at last week's meeting that inflation has been on the rise, "partly in response to tariffs". Importantly, Powell signaled that the Fed continues to expect two rate cuts this year, which is similar to money market expectations.

Atlanta Fed President Rafael Bostic said on Tuesday that he expects only one rate cut this year, noting that "inflation will be bumpy and not move dramatically and in a clear way to the 2% target".

AUD/USD Technical

AUD/USD is testing resistance at 0.6307. Above, there is resistance at 0.6635.

There is support at 0.6224 and 0.6174