30.09.202600:39 Forex Analysis & Reviews: AUD/USD. A Cold Shower for the Aussie: RBA Chief Cooled Hawkish Expectations

The AUD/USD pair is trying to hold below the psychologically important 0.7000 support despite the Reserve Bank of Australia's hawkish September outcome. The central bank raised the cash rate by 25 basis points to 4.60% and published a fairly stern accompanying statement. Yet the Aussie reacted to the hawkish September decision in the opposite way, hitting a two-month price low.

The key source of pressure here was not the decision itself but subsequent comments by RBA Governor Michele Bullock.

Still, start with the central-bank decision. This was the fourth rate increase this year, and it was unanimous. In its final communique, the RBA said plainly that "some of the upside risks to inflation have started to materialize." That price growth and inflationary threats "have proven stronger than assumed in the August forecast." The bank also noted separately that oil-supply disruptions are supporting higher energy prices, and that higher fuel costs are already being partially passed into the price of other goods and services. That weak productivity "continues to constrain potential growth."

Overall, the September statement was noticeably firmer. The RBA explicitly signaled the possibility of further tightening, saying that "additional tightening of financial conditions would be warranted while inflation remains too high."

Thus the RBA effectively delivered a "hawkish hike." In August, the bank had spoken of acting "if risks materialize"; in September's statement it effectively indicated intent to continue monetary tightening.

However, Michele Bullock's comments countered the hawkish communique. The RBA governor made plain that the current hike does not automatically imply an immediate move to the next tightening step. She clarified that the Board discussed both raising rates and maintaining the status quo — that is, members assessed whether the degree of tightness already achieved is sufficient.

Moreover, Bullock suggested that four rounds of hikes "may be sufficient to return inflation to target" — although she added there is no definitive certainty. That remark acted as a cold shower for AUD/USD bulls. After an initial spike to 0.7029, the pair reversed sharply and printed a two-month low, plunging into the 0.69 area.

The fundamental backdrop for the Aussie remains quite mixed. August labour-market data showed employment rose by 39.5k, but that gain came entirely from part-time jobs while full-time employment fell. Unemployment also rose to 4.6%, and consumer spending in August was flat month on month. In other words, the economy is already showing signs of cooling, which in part explains Bullock's caution about further tightening.

But the question now is: will the southern impulse for AUD/USD continue? On one hand, the RBA left the door open for additional rate hikes, saying it stands ready to respond if inflationary pressure strengthens. On the other hand, the governor made it clear that the current degree of monetary tightness may already be sufficient.

All this implies that macro data will largely determine the next direction for AUD/USD.

In this context, Wednesday's Australian inflation report is especially important. Most forecasters expect headline CPI for August to accelerate to about 4.0% y/y (some estimates 4.1%), after four months of declines to 3.5%. The trimmed mean is expected to remain around 3.6% y/y — the level it has held for the past three months.

Headline acceleration will be driven largely by fuel prices, so the RBA will place more weight on core inflation measures. An unexpected rise in the trimmed mean would be the strongest support for the Aussie and thus for AUD/USD. If the core measure instead shows signs of cooling, Bullock's dovish remarks will carry more weight and pressure on AUD/USD will intensify.

Thus, for now the balance has not tipped decisively in either direction despite the initial upside impulse for the Aussie. The RBA's hawkish decision was met with the governor's softer comments, and much now depends on incoming data — primarily inflation and the labor market. The first "test" comes on Wednesday, so it is sensible to adopt a wait-and-see stance on the pair: on Wednesday the scales may tip either toward AUD/USD buyers or toward sellers.

From a technical perspective, the 0.7000 level is the key watershed. A decisive close below this target would strengthen the bearish scenario and open the way to 0.6930. A return above 0.7000 would allow AUD/USD buyers to stabilize and target the 0.7050 area (the upper Bollinger Band, coinciding with the Kijun-sen on H4).