Australian RBA’s Quarterly Inflation Preview: First hint ahead of RBA’s tightening path

• The Australian central bank has dropped its patient stance and announced monetary policy would be data-dependent.
• Australian quarterly inflation is expected to surpass the upper end of the RBA’s target.
• The AUD/USD pair is technically bearish, although upbeat inflation figures could trigger a recovery.

Australia will release its latest inflation estimates on Wednesday, April 27. The annual rate is expected to have reached 4.6% in the first quarter of the year, up from 3.5% in Q4 2021. The RBA's Trimmed Mean core CPI is foreseen at 3.4%, much higher than the previous 2.6% and above the upper end of the Reserve Bank of Australia’s target for the first time in over a decade.

Central banks and inflation

As is the case globally, rising fuel prices and global supply chain issues are behind price pressures. Australian policymakers dropped their patient stance at the beginning of the year and began sending hawkish messages to financial markets, hinting at a potential rate hike, with speculative interest now looking at June as the time for the first movement.

Reserve Bank of Australia Governor Philip Lowe & co announced that monetary policy would be data-dependent, but it is not just about inflation. “The Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3% range before it increases interest rates. Inflation has picked up, and a further increase is expected, but growth in labor costs has been below rates that are likely to be consistent with inflation being sustainably at target.” However, Q1 wage growth figures will not come out until June 1st.

It seems unlikely the Australian central bank could take a decision before the latter is released. Policymakers would need to gather more info, yet at the same time, not fall too behind their overseas counterparts, which have adopted a more aggressive stance well ahead of the RBA.

Chances of Australian consumer prices contracting instead of rising are pretty much null. Nevertheless, in the case of a modest advance that falls short of the market’s expectations, investors will likely rush into pricing in a later hike, which would mean an AUD/USD decline.

On the other hand, if the report results above analysts’ forecasts, the aussie will probably get a temporal boost. Sustained gains would depend on how speculative interest perceives risk and hence, the greenback.

AUD/USD Technical outlook

The AUD/USD pair is technically bearish, although showing signs of bearish exhaustion. The pair broke below the 61.8% retracement of this year’s rally at 0.7230 on Monday and completed a pullback to the level on Tuesday. It currently trades at around 0.7180, after bottoming on Monday at 0.7134.

The daily chart shows that the pair has also broken below all of its moving averages, while the 20 SMA gains bearish traction above the longer ones. Technical indicators, in the meantime, have reached oversold readings, from where they are now attempting to bounce. As such, AUD/USD may correct higher before resuming its decline, as it would take a recovery beyond 0.7400 to see the pair reestablish its bullish momentum.

A positive reaction to inflation data could see the pair breaking through the aforementioned 0.7230 and extending its advance towards the 0.7300 figure. 

On the other hand, a break below the weekly low should open the doors for a steeper decline, eyeing the 0.7070 level first, en route to the yearly low at 0.6966.