AUD Slips as April CPI Miss Resets RBA Tightening Odds

The Australian dollar declined after the April annual CPI reading showed a deceleration from the prior month's rate. The data reduced the probability of another RBA rate hike, forcing a repricing of the short-term rate path that had supported the currency in recent weeks.

The simple read is straightforward: softer inflation lowers the urgency for tightening, and the AUD sold off. The better market read examines the transmission through rate differentials. When Australian inflation softens, the yield advantage of holding AUD-denominated assets narrows relative to the US dollar, especially with the Federal Reserve maintaining its higher-for-longer stance. That shift in relative yields directly pressures AUD/USD.

CPI Print Resets RBA Rate Path

The April CPI figure landed below the prior month's annual rate, removing the case for a follow-up rate increase after the May hike. Markets had been pricing a non-trivial probability of another move. The data forced a recalibration. The OIS curve shifted lower for the next two RBA meetings, with short-term rate expectations dropping.

Positioning likely amplified the move. Speculative accounts had built long AUD positions ahead of the print, betting on sticky inflation. The unwind of those positions added velocity to the decline. AUD/USD broke below a key support level near 0.6600, a zone that had held for several sessions.

Transmission Through Yields and the Dollar

The Australian 10-year yield fell relative to the US 10-year yield, compressing the spread that had been supporting the AUD. A narrower yield differential makes carry trades less attractive and reduces demand for the Australian dollar. The US dollar index gained on the session, adding a second layer of pressure.

Commodity prices offered no offset. Iron ore and coal futures were flat to lower, removing the terms-of-trade support that sometimes cushions the AUD during risk-off moves. The combination of a weaker rate outlook and steady commodity prices left the currency exposed.

Next Decision Point: RBA June Meeting

The next concrete catalyst is the RBA's June policy meeting. The CPI print gives the board cover to hold rates steady. The decision will also depend on the May labour force report and the Q1 wage price index. If employment remains tight and wages accelerate, the RBA may still lean hawkish, which could stabilise the AUD. If both soften, the case for a cut later this year will strengthen, and the AUD could extend its decline.

For traders, the key level to watch is AUD/USD 0.6550. A break below that opens the path toward the April low near 0.6460. A recovery above 0.6650 would suggest the CPI miss was a one-off and the market is re-pricing back toward a neutral stance.

For a broader view of how rate differentials drive currency moves, see our forex market analysis. Traders positioning for the next RBA decision may also find the best forex brokers useful for execution.