AUD/USD Gains on Tax Cuts but Struggles as Inflation Slows
AUDUSD has been trading in a range for months with tariffs pending, and the elections tax cuts or inflation data can’t get it going.
Australian Government Announces Tax Cuts Ahead of Elections
Australia’s left wing government made a surprise announcement in the European session yesterday, in an attempt to lure voters after many years of mismanagement. It unveiled some tax cuts and extended energy rebates in its pre-election budget. The move is widely seen as an attempt to boost political support and improve Prime Minister Anthony Albanese’s chances of securing a second term in office.
Market Reaction and RBA Implications
Following the announcement, the Australian Dollar (AUD) gained ground, and Australian bond yields moved higher. However, this could complicate the Reserve Bank of Australia’s (RBA) efforts to control inflation and cut interest rates. The unexpected fiscal stimulus may fuel consumer spending, potentially delaying the central bank’s plans to bring inflation back within target.
AUD/USD Chart Daily – The Range Narrows
The AUD/USD pair has been in a sustained downtrend, dropping nearly 8 cents in Q4 2024, largely driven by the strength of the US dollar. In early February, the pair attempted another decline, briefly dipping below 0.61 before reversing course as a delay in US trade tariffs triggered a sharp rally. This pushed AUD/USD above 0.64 later in the month.
Despite the rebound, the 100-day Simple Moving Average (SMA) (green) acted as a strong resistance level, preventing further gains and forcing the pair back down. The Australian dollar has also faced renewed pressure following the imposition of US trade tariffs on China, Australia’s largest trading partner.
Short-Lived Rally and CPI Inflation Report
The tax cut announcement initially sent AUD/USD soaring by 50 points, but the gains were short-lived. The pair has already retraced those moves ahead of the Australian CPI inflation report, which was released overnight. Traders remain cautious, as the inflation data will likely determine the RBA’s next policy moves and influence the Australian dollar’s direction in the coming days.
Australia’s February CPI Report – Inflation Slows Slightly
Key Data Points:
Headline CPI (Year-over-Year):
2.4% vs. 2.5% expected (slightly below forecast)
Previous reading: 2.5%
Trimmed Mean CPI (Core Inflation, Year-over-Year):
2.7% vs. 2.8% prior (marginal decline)
Analysis and Market Impact:
Inflation continues to trend lower, indicating that price pressures in Australia are gradually easing.
Core inflation (Trimmed Mean CPI) also declined, reinforcing the idea that underlying inflationary pressures are softening.
The Reserve Bank of Australia (RBA) will likely take note of this report as it assesses future interest rate moves.
The Australian Dollar (AUD) showed limited reaction, as the slightly softer inflation reading does not drastically alter the outlook for RBA monetary policy.
AUD/USD Live Chart
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