AUD/USD: on the defensive, RBA trims inflation forecasts

• RBA’s downward revision of inflation forecasts could bolster the already bearish technical setup. 
• AUD risks deeper losses if CNY continues to fall.

The AUD/USD pair is trading at a five-day low of 0.7366, having created a bearish outside-day candle yesterday and risks falling further, courtesy of Reserve Bank of Australia’s (RBA) downward revision of the inflation forecasts. 

The RBA trimmed the December 2018 underlying inflation forecast to 1.75 percent and now sees inflation at 2 percent in December 2019 and 2.25 percent in December 2020, the central bank’s statement of monetary policy showed. 

The downward revision of inflation forecasts adds credence to RBA’s view that there is no strong case for a near-term rate move. The central bank also raised GDP (year average) forecast for 2018 to 3.25% from 3%, although that has not put a bid under the Aussie. 

Looking ahead, the AUD could drop further if the Chinese yuan drops.  Technically speaking, a negative close today would add credence to previous day’s bearish outside-day candle and would strengthen the bar grip around the AUD. 

AUD/USD Technical Levels

Resistance: 0.7395 (5-day MA), 0.7434 (50-day MA), 0.7453 (previous day’s high)

Support: 0.7348 (Aug. 3 low), 0.7318 (July 20 low), 0.73 (psychological level)