As reported by Fxopen.com,

Australian Dollar Hits 3-Year Low Against US Dollar Amid Inflation Concerns

The Australian dollar has fallen to its weakest level in nearly three years, with the exchange rate plummeting below 0.618 Australian dollars per 1 US dollar on the AUD/USD chart. This significant decline marks a new low for the Australian dollar since April 2020, when the global economy was grappling with the COVID-19 pandemic.

Inflation Data Sparks Rate Cut Speculation

The downward trend follows the release of Australia’s inflation data earlier this week, which revealed a mixed bag of results. According to Bloomberg, overall annual inflation accelerated to 2.3%, up from 2.1% previously. However, the trimmed mean core inflation, closely monitored by the Reserve Bank, slowed to 3.2%, down from 3.5%. These numbers have led traders to price in a 70% chance of a 25 basis point rate cut in February, which would bring the current 4.35% rate – a 13-year high – down a notch.

Technical Analysis Offers Hope for Bulls

Despite the AUD/USD exchange rate being within the current downtrend, technical analysis suggests that bulls may still have reason to be hopeful. The RSI indicator points to a divergence, which can be interpreted as weakening selling pressure. Furthermore, although the median line of the channel has acted as resistance, the sharp rise in the first days of 2025 indicates that demand forces are gaining momentum. This could potentially attract buyers of the weakened Australian dollar if the exchange rate falls back to the lower boundary of the red channel.

A Glimmer of Hope for the Australian Dollar

While the Australian dollar’s decline may seem ominous, the technical analysis offers a glimmer of hope for bulls. If the exchange rate does fall back to the lower boundary of the red channel, it could spark a buying frenzy, potentially reversing the downtrend. As the Reserve Bank considers a rate cut, the Australian dollar’s fate hangs in the balance. Will the rate cut be enough to revive the struggling currency, or will it continue its downward spiral? Only time will tell.

Conclusion

In conclusion, the Australian dollar’s decline to a 3-year low against the US dollar has sparked concerns about inflation and the potential for a rate cut. While technical analysis offers some hope for bulls, the currency’s fate remains uncertain. As the Reserve Bank weighs its options, traders and investors will be watching closely to see how the situation unfolds.

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