Aussie Gains as RBA Signals Gradual Policy Easing

Key Takeaways:

*Confidence in Australia’s gradual recovery, with inflation in target range and a strong labor market, has boosted the currency.

*Meeting minutes suggested current rates are restrictive, hinting at a gradual easing cycle to balance inflation and employment goals.

*U.S. PCE inflation and China’s PMI will be pivotal, with stronger U.S. data favoring the dollar while China’s signals could sway Aussie sentiment.

Market Summary:

The Australian dollar advanced against most major currencies in recent trading, supported by growing optimism surrounding the nation’s economic resilience. Inflationary measures have moved within the Reserve Bank of Australia’s target band, while labor market conditions remain tight, providing a firmer fundamental foundation for the currency.

The release of the latest RBA meeting minutes during Sydney trading hours offered further clarity on the policy trajectory. Policymakers indicated that the current cash rate is viewed as “mildly restrictive,” and suggested that a gradual easing of monetary policy may be appropriate to balance inflation control against supporting full employment. This communication has been interpreted by markets as reducing the likelihood of abrupt shifts, thereby enhancing investor confidence in the Aussie’s stability.

Looking ahead, the currency faces two key external tests. The U.S. core PCE inflation print—the Federal Reserve’s preferred gauge—could reinforce the dollar’s strength if readings come in elevated, potentially capping AUD upside. Additionally, China’s upcoming PMI data will be closely monitored given Australia’s significant export exposure to the world’s second-largest economy. A stabilization or improvement in Chinese manufacturing activity could further extend the Australian dollar’s gains.

Technical Analysis

GBPAUD, H4

GBP/AUD is testing a critical technical juncture after retreating from a significant resistance level near the 2.1000 mark—a barrier that has capped upward moves since May. The pair, which had been trading within a defined uptrend channel, has undergone a notable retracement and is now approaching the key 61.8% Fibonacci retracement level at 2.0675. This zone is widely watched for potential stabilization or a technical rebound, given its historical significance in determining the sustainability of the prior trend.

A failure to hold this support and mount a meaningful recovery would suggest a breakdown of the established bullish trajectory, potentially signaling a shift to a bearish near-term bias. Such a break could open the path toward deeper support levels, invalidating the previous upward channel structure.

Momentum indicators currently reinforce the weakening technical picture. The Relative Strength Index (RSI) has declined into near-oversold territory, reflecting strengthening selling pressure, while the Moving Average Convergence Divergence (MACD) has crossed below its zero line, confirming a loss of bullish momentum and aligning with the recent price decline.

Resistance level: 2.0880, 2.1000

Support level: 2.0675, 2.0580