- The Reserve Bank of Australia kept interest rates unchanged on Tuesday.
- Markets moved to price an over 50% likelihood of an RBA rate cut in February.
- Traders eagerly await the US Consumer Price Index report.
The AUD/USD outlook shows weakness in the Australian dollar due to a surge in Reserve Bank of Australia rate cut expectations. Meanwhile, the greenback remained steady ahead of the crucial US consumer inflation report.
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The Reserve Bank of Australia kept interest rates unchanged on Tuesday and softened its tone on inflation, boosting rate cut bets. Markets had expected the pause. However, the less hawkish tone was a surprise that caused a sharp market reaction.
The RBA noted that policymakers had gained more confidence that inflation would reach its target. For months, policymakers have maintained a hawkish tone, emphasizing the need for restrictive policy. However, during the meeting, there was no mention of a restrictive policy.
As a result, markets moved to price an over 50% likelihood of a rate cut in February. Initially, markets were expecting the first cut in May. The Australian dollar fell towards a 4-month as bears cheered the less hawkish tone.
On the other hand, the US dollar held its ground as market participants looked forward to the US Consumer Price Index report for more clues on Fed rate cuts. Currently, markets are almost fully pricing a rate cut in December. However, a surprise reading on inflation could shift this outlook.
AUD/USD key events today
Markets will continue to absorb the outcome of the Reserve Bank of Australia policy meeting as there are no other key events.
AUD/USD technical outlook: Bears charge at the 0.6375 support
On the technical side, the AUD/USD price is approaching the 0.6375 support level. The price trades well below the 30-SMA, with the RSI in bearish territory below 50. As a result, the bearish bias is strong. However, on a larger scale, the price has maintained a shallow downtrend with periods of consolidation.
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Previously, the price ranged between the 0.6450 support and the 0.6550 resistance level. It then broke below the range support to continue the downtrend. However, it might remain in a new range with support at 0.6375 and resistance at 0.6450.
On the other hand, if bearish momentum surges at the 0.6375 support, the price will break below to make a new low in the downtrend.
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