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At its meeting today, the Board decided to lower the cash rate target to 4.10 per cent and the interest rate paid on Exchange Settlement balances to 4 per cent.

Underlying inflation is moderating.

Inflation has fallen substantially since the peak in 2022, as higher interest rates have been working to bring aggregate demand and supply closer towards balance. In the December quarter underlying inflation was 3.2 per cent, which suggests inflationary pressures are easing a little more quickly than expected. There has also been continued subdued growth in private demand and wage pressures have eased. These factors give the Board more confidence that inflation is moving sustainably towards the midpoint of the 2–3 per cent target range.

However, upside risks remain. Some recent labour market data have been unexpectedly strong, suggesting that the labour market may be somewhat tighter than previously thought. The central forecast for underlying inflation, which is based on the cash rate path implied by financial markets, has been revised up a little over 2026. So, while today’s policy decision recognises the welcome progress on inflation, the Board remains cautious on prospects for further policy easing.

The outlook remains uncertain.

Growth in output has been weak, private domestic demand is recovering a little more slowly than earlier expected, and there is uncertainty around the extent to which the recovery in household spending in late 2024 will persist. Wage pressures have eased a little more than expected, housing cost inflation is abating, and businesses in some sectors continue to report that it has been hard to pass on cost increases to final prices.

At the same time, a range of indicators suggest that labour market conditions remain tight and, in fact, tightened a little further in late 2024. Measures of labour underutilisation have declined, and business surveys and liaison suggest that availability of labour is still a constraint for a range of employers. Furthermore, productivity growth has not picked up, which implies that growth in unit labour costs remains high.

There are notable uncertainties about the outlook for domestic economic activity and inflation. The central projection is for growth in household consumption to increase as income growth rises. But there is a risk that any pick-up in consumption is slower than expected, resulting in continued subdued output growth and a sharper deterioration in the labour market than currently projected. Alternatively, labour market outcomes may prove stronger than expected, given the signal from a range of leading indicators.

More broadly, there are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slow growth in the economy and weak productivity outcomes while conditions in the labour market remain tight.

Uncertainty about the outlook abroad also remains significant. Geopolitical and policy uncertainties are pronounced and may themselves bear down on activity in many countries if households and firms delay expenditures pending greater clarity on the outlook. Most central banks have been easing monetary policy as they become more confident that inflation is moving sustainably back towards their respective targets. But market expectations for further easing have moderated somewhat in recent months, particularly in the United States.

Sustainably returning inflation to target is the priority.

Sustainably returning inflation to target within a reasonable timeframe remains the Board’s highest priority. This is consistent with the RBA’s mandate for price stability and full employment. To date, longer term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

The Board’s assessment is that monetary policy has been restrictive and will remain so after this reduction in the cash rate. Some of the upside risks to inflation appear to have eased and there are signs that disinflation might be occurring a little more quickly than earlier expected. There are nevertheless risks on both sides.

The forecasts published today suggest that, if monetary policy is eased too much too soon, disinflation could stall, and inflation would settle above the midpoint of the target range. In removing a little of the policy restrictiveness in its decision today, the Board acknowledges that progress has been made but is cautious about the outlook.

The Board will continue to rely upon the data and the evolving assessment of risks to guide its decisions. In doing so, it will pay close attention to developments in the global economy and financial markets, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

Key Highlights

• GBP/USD started a fresh increase above the 1.2500 resistance.
• A key bullish trend line is forming with support at 1.2400 on the 4-hour chart.
• EUR/USD is struggling to clear the 1.0520 resistance zone.
• Crude Oil prices remained in a bearish zone below the $72.20 level.

GBP/USD Technical Analysis

The British Pound formed a base and started a fresh increase against the US Dollar. GBP/USD surpassed the 1.2450 and 1.2500 resistance levels.

Looking at the 4-hour chart, the pair settled above the 1.2550 level, the 100 simple moving average (red, 4-hour), and the 200 simple moving average (green, 4-hour). The pair even tested the 1.2630 zone before there was a minor pullback.

On the downside, immediate support sits near the 1.2515 level. It is near the 38.2% Fib retracement level of the upward move from the 1.2332 swing low to the 1.2630 high.

The next key support sits near the 1.2650 level or the 61.8% Fib retracement level of the upward move from the 1.2332 swing low to the 1.2630 high. The main support could be 1.2400. There is also a key bullish trend line forming with support at 1.2400 on the same chart.

Any more losses could send the pair toward the 1.2250 level. On the upside, the pair seems to be facing hurdles near the 1.2630 level. The next major resistance is near the 1.2665 level. The main resistance is now forming near the 1.2750 zone.

A close above the 1.2750 level could set the tone for another increase. In the stated case, the pair could even clear the 1.2800 resistance.

Looking at EUR/USD, the pair started a decent increase above 1.0450 but the bears are still active near the 1.0520 resistance.

Upcoming Economic Events:

• UK Claimant Count Change for Jan 2025 – Forecast 10.0K, versus 0.7K previous.
• UK ILO Unemployment Rate for Dec 2024 (3M) – Forecast 4.5%, versus 4.4% previous.

Daily Pivots: (S1) 1.0465; (P) 1.0486; (R1) 1.0505; More...

No change in EUR/USD's outlook as consolidation from 1.0176 is extending. Intraday bias stays neutral for now. Stronger rebound might be seen but outlook will remain bearish as long as 38.2% retracement of 1.1213 to 1.0176 at 1.0572 holds. On the downside, break of 1.0176 will resume whole fall from 1.1213. However, decisive break of 1.0572 will raise the chance of reversal, and target 61.8% retracement at 1.0817.

In the bigger picture, immediate focus is on 61.8 retracement of 0.9534 (2022 low) to 1.1274 (2024 high) at 1.0199. Sustained break there will solidify the case of medium term bearish trend reversal, and pave the way back to 0.9534. However, reversal from 1.0199 will argue that price actions from 1.1274 are merely a corrective pattern, and has already completed.

Daily Pivots: (S1) 1.2590; (P) 1.2613; (R1) 1.2648; More...

No change in GBP/USD's outlook and intraday bias stays neutral, with focus on 38.2% retracement of 1.3433 to 1.2099 at 1.2609. Rejection by this level will keep near term outlook bearish. Break of 1.2331 support will suggest that the rebound from 1.2099 has completed as a correction, and bring retest of 1.2099 low. However, firm break of 1.2609 will raise the chance of near term reversal, and target 61.8% retracement at 1.2923.

In the bigger picture, rise from 1.0351 (2022 low) should have already completed at 1.3433 (2024 high), and the trend has reversed. Further fall is now expected as long as 1.2810 resistance holds. Deeper decline should be seen to 61.8% retracement of 1.0351 to 1.3433 at 1.1528, even as a corrective move. However, firm break of 1.2810 will dampen this bearish view and bring retest of 1.3433 high instead.

Daily Pivots: (S1) 0.8981; (P) 0.9000; (R1) 0.9026; More…

USD/CHF is still extending the consolidation pattern from 0.9200 and intraday bias remains neutral. While deeper pull back might be seen, outlook will stay mildly bullish as long as 38.2% retracement of 0.8374 to 0.9200 at 0.8884 holds. On the upside, firm break of 0.9223 key resistance will carry larger bullish implication. However, sustained break of 0.8884 will indicate bearish reversal, and target 61.8% retracement at 0.8690 instead.

In the bigger picture, decisive break of 0.9223 resistance will argue that whole down trend from 1.0342 (2017 high) has completed with three waves down to 0.8332 (2023 low). Outlook will be turned bullish for 1.0146 resistance next. Nevertheless, rejection by 0.9223 will retain medium term bearishness for another decline through 0.8332 at a later stage.

Daily Pivots: (S1) 151.05; (P) 151.75; (R1) 152.22; More...

No change in USD/JPY's outlook. Intraday bias stays neutral with focus on 38.2% retracement of 139.57 to 158.86 at 151.4. Strong rebound from there will maintain near term bullishness. On the upside, break of 154.79 will revive the case that correction from 158.86 has completed at 150.29. Further rise should be seen to retest 158.86 high. However, break of 150.92 and sustained trading below 151.49 will raise the chance of trend reversal, and target 148.64 support instead.

In the bigger picture, price actions from 161.94 are seen as a corrective pattern to rise from 102.58 (2021 low). In case of another fall, strong support should be seen from 38.2% retracement of 102.58 to 161.94 at 139.26 to bring rebound. However, sustained break of 139.26 would open up deeper medium term decline to 61.8% retracement at 125.25.

Daily Pivots: (S1) 1.4165; (P) 1.4179; (R1) 1.4199; More...

A temporary low is formed at 1.4150 with current recovery, and intraday bias in USD/CAD is turned neutral first. Deeper decline will remain in favor as long as 1.4378 resistance holds. Fall from 1.4791 is correcting whole rise from 1.3418. Break of 1.4150 will target 1.3946 cluster support (61.8% retracement of 1.3418 to 1.4791 at 1.3942).

In the bigger picture, long term up trend is tentatively seen as resuming with prior breach of 1.4667/89 key resistance zone (2020/2015 highs). Next target is 100% projection of 1.2401 to 1.3976 from 1.3418 at 1.4993. This will remain the favored case as long as 1.3976 resistance turned holds (2022 high), even in case of deep pullback.

Fed Governor Christopher Waller downplayed concerns that tariffs would have a significant, lasting impact on inflation, stating that their effect is likely to be “modest” and “non-persistent.” As a result, he favors “looking through” these effects when setting policy.

In a speech overnight, he emphasized that while economic uncertainty remains, Fed cannot afford to fall into a “recipe for policy paralysis” by waiting for absolute clarity regarding the administration's policies.

However, he conceded that tariffs could have a larger impact than expected, depending on their size and implementation. At the same time, he pointed out that other policies under discussion could have positive supply-side effects, helping to ease inflationary pressures.

Waller defended Fed’s decision to hold rates steady in January, arguing that the current economic data “are not supporting a reduction in the policy rate at this time.”

He left the door open for future rate cuts, stating that “if 2025 plays out like 2024, rate cuts would be appropriate at some point this year.”

Full speech of Fed's Waller here.

• New Zealand’s unemployment rate has accelerated to 5.1% in Q4 2024, a whisker below its Covid peak of 5.2% while Australia’s unemployment rate remained stable at 4%.
• A further steepening of yield spreads between Australian and New Zealand sovereign bonds may trigger further upside in the AUD/NZD cross rate.
• Watch the 1.0980 key medium-term support on AUD/NZD.

This week, the Antipodean countries’ central banks will decide their respective monetary policy; Australia’s RBA on Tuesday, 18 February, and New Zealand’s RBNZ on the following day on 19 February.

The Aussie and Kiwi have strengthened against the US dollar since 3 February when US President Trump “fired” his trade tariffs salvo against Canada, Mexico, and China. The AUD/USD and NZD/USD rallied by 4.6% and 4% in the past two weeks from their respective 3 February lows to 17 February at this time of writing.

Market participants have started to price in 25 basis points (bps) cut by RBA, its first cut in four years after being “late” to the global interest rate cut cycle (excluding Bank of Japan) to reduce its policy cash rate to 4.1%. A slowdown in the Australian inflation trend came in faster than the RBA anticipated where the trimmed mean gauge of consumer rose 3.2% y/y in Q4 2024 versus a higher consensus expectation of 3.3%.

Meanwhile, New Zealand’s RBNZ is expected to deliver another “jumbo size rate cut” of 50 bps after three consecutive rate cuts conducted in 2024 to reduce its official cash rate to 3.75% due to a deceleration in inflation trend and a rapid slowdown in growth conditions. Business confidence has declined for three consecutive months coupled with a 22-month streak of contraction in manufacturing PMI data.

A weaker New Zealand labour market is supporting a further steepening of AU/NZ sovereign bonds’ yield spread

Fig 1: AU & NZ unemployment rate with 2-year & 10-year  yield spreads of AU/NZ government bonds as of 18 Feb 2025 (Source: TradingView, click to enlarge chart)

New Zealand’s unemployment rate has accelerated to 5.1% in the three months through December 2024 which is almost its Covid peak of 5.2% recorded in Q3 of 2020 (see Fig 1).

Meanwhile, the unemployment rate for Australia remained stable at 4% for its latest reading of December 2024, within the range of 4.1% to 3.7% recorded in 2024.

The bleaker labour market condition in New Zealand increases the odds that RBNZ is likely to adopt a relatively more dovish monetary policy in 2025 over RBA.

Therefore, the 2-year and 10-year yield spreads between Australia and New Zealand sovereign bonds are likely to steepen further and, in turn, may ignite upside pressure on the AUD/NZD cross rate.

Potential bullish change of trend for AUD/NZD

Fig 2: AUD/NZD major and medium-term trends as of 18 Feb 2025 (Source: TradingView, click to enlarge chart)

Since 17 July 2024, the price actions of AUD/NZD have not been above to break above a “stubborn” range resistance of 1.1165/1190 as it continued to consolidate above a rising 200-day moving average.

Several positive technical elements have emerged that support a potential impending bullish breakout above 1.1165/1190 for the AUD/NZD.

Firstly, its price actions have started to trade above its 50-day moving average since 4 February.

Secondly, the daily MACD trend indicator has just staged a bullish breakout from its descending trendline resistance, and its centreline on 10 February suggests a potential start of a medium-term bullish momentum condition that may lead to higher price actions on the AUD/NZD (see Fig 2).

Watch the 1.0980 key medium-term pivotal support and clearance above 1.1190 may see the next medium-term resistances coming in at 1.1245 and 1.1430/1460 (also the upper boundary of a major ascending channel from 22 February 2024)

However, failure to hold above 1.0980 invalidates the bullish scenario for a corrective decline to expose the next medium-term supports at 1.0850 and 1.0735.

• Brent Crude Oil reversed from support zone
•  Likely to rise to resistance level 76.75

Brent Crude Oil recently reversed up from the support zone between the key support level 74.00 (former strong resistance from December), lower daily Bollinger Band and the 61.8% Fibonacci correction of the upward impulse from October.

The upward reversal from this support zone stopped the previous short-term ABC correction ii from the middle of January.

Given the bullish divergence on the daily Stochastic, Brent Crude Oil can be expected to rise to the next resistance level 76.75.