EURAUD Breaks Above Resistance with Inflation & Rates Ahead

EURAUD has the potential to push higher this week after a breakout last week.

EURAUD: Weekly Chart

EURAUD: Weekly Chart

The EUR/AUD exchange rate had threatened to drop back through the 1.6515 level but rallied to close above. That sets the stage for a test of the 1.68 level again.

Monday will bring a European inflation reading, followed by an interest rate decision from the Reserve Bank of Australia.

European core inflation is expected to decline from 5.5% to 5.4% after the ECB hiked rates by 25 basis points last week. Policymakers hinted that they would do more to get inflation back to the 2% target.

Further data will come with the latest flash GDP for the second quarter, and analysts expect a 0.2% reading after a flat 0% in the previous month.

On a yearly basis, the economy is expected to show a 0.5% reading, down from 1.1% last month. Germany, Europe’s largest economy, has slumped into a recession, and that is harming the outlook for the euro.

The Reserve Bank of Australia will raise its benchmark interest rate once more by 25 basis points this week and then pause for the rest of the year, according to a Reuters survey of analysts.

Although the RBA has raised interest rates by 400 basis points since May 2022, inflation was still running at 6.0% in the previous quarter, which is double the maximum desired level in the 2-3% range. A record-low unemployment rate has been coupled with a rebound in house prices in the country, which analysts see as the reason for the RBA to hike rates further.

“We’re still expecting a hike,” said Jameson Coombs, an economist at Westpac.

“However, the risk of a pause has definitely increased, potentially after the inflation report, but it’s again going to be another quite finely balanced decision,” he added, referring to a recent fall in quarterly inflation data in July.

“It’s not clear evidence yet that we’re seeing a turn in the trajectory of inflation, but it is a potential early indicator that some of the impacts of rate hikes on demand are starting,” he said.

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