RBA’s Bullock Defends Hawkish Inflation Warnings; AUD/USD Price Outlook

In a critical week for Australia’s economy, Reserve Bank of Australia (RBA) Governor Michele Bullock stood firm on the central bank’s hawkish stance.

Despite growing criticism that high interest rates are “smashing the economy,” Bullock defended the RBA’s monetary policy during a keynote speech on Thursday.

Addressing market participants and banking sector leaders, she emphasized that core inflation remains stubbornly high, with little reduction over the past year.

Inflation Still a Threat, Says Bullock

Bullock’s remarks stressed that while the RBA remains vigilant, it is far too soon to discuss rate cuts. “It is premature to be thinking about rate cuts,” Bullock said during her speech at the Anika Foundation, a charity supported by financial markets. She noted that unless economic conditions change unexpectedly, the board does not anticipate reducing rates in the near future.

• Core inflation remains elevated.
• Rate cuts are not expected anytime soon.
• The RBA remains focused on curbing inflation.

Growing Political Pressure

Bullock’s speech comes after Treasurer Jim Chalmers criticized the impact of elevated interest rates, calling them a “crunch” on the economy. Second-quarter GDP data released earlier this week revealed Australia’s weakest growth rate since the early 1990s—outside of the COVID-19 pandemic. The 0.2% growth seen last quarter has sparked fears of a deeper slowdown, with household spending showing sharp declines not seen since the global financial crisis.

Political pressure on the RBA to adjust its policy is expected to intensify in the coming months, especially with a federal election looming in early 2025. Although Australia has avoided a recession, the continuing slowdown and high unemployment risks remain significant concerns.

• Political heat is increasing on the RBA.
• Second-quarter GDP growth at just 0.2%.
• Household spending levels reflect the financial crisis era.

Inflation Takes Precedence Over Employment

Despite these challenges, Bullock reiterated that inflation reduction remains the RBA’s top priority, even as the economy shows signs of strain. Inflation rose 3.9% year-on-year in the second quarter, reinforcing the central bank’s cautious approach.

The RBA’s cash rate is currently 4.35%, and Bullock admitted that balancing inflation control with maintaining low unemployment is difficult. However, she made it clear that inflation control would take precedence if a conflict arises between these two objectives.

• Inflation rose 3.9% in the second quarter.
• RBA’s cash rate remains at 4.35%.
• Reducing inflation is the top priority for the RBA.

AUD/USD Price Forecast – Technical Outlook

As the RBA maintains its hawkish tone, AUD/USD has been trading in a tight range. The pair is consolidating between 0.6750 and 0.6710, with a series of indecisive candlestick formations like Dojis and spinning tops indicating further potential downward movement. The price continues to face resistance at the 50-day EMA, which adds weight to the bearish sentiment.

The RSI indicator sits below the 50 level, confirming a downward bias. A break below the key support level at 0.6710 could trigger a deeper selloff, with the next support target set around 0.6670. On the upside, resistance remains strong at 0.6748.

• Key Resistance: 0.6750, 0.6748
• Immediate Support: 0.6710, 0.6670
• RSI: Below 50, supporting bearish momentum.

Conclusion: AUD/USD Outlook

The technical indicators suggest that AUD/USD is at risk of further declines. If the pair fails to break above 0.6748, sellers may take control, leading to further downside.

A bearish breakout below 0.6710 could accelerate the downward trend, pushing prices toward the next support at 0.6670. Investors should keep an eye on resistance at 0.6750, as a break above this level would signal a potential reversal in sentiment.

In summary, the RBA’s hawkish stance, combined with ongoing economic pressures, continues to weigh on both the Australian dollar and overall market sentiment.