AUD Tug-of-War: Hawkish RBA Warnings vs Weak US Inflation

The Australian dollar (AUD) has been trading in a narrow range against the U.S. dollar, hovering around 0.7060, despite hawkish signals from the Reserve Bank of Australia (RBA). On Thursday, RBA Assistant Governor Chris Kent warned that further rate hikes could follow if inflation risks reemerge.

The AUD's decline has been driven by external factors, including Fed policy expectations and the U.S. dollar's direction, rather than the RBA's own policy stance. The weak U.S. inflation data released on Thursday weighed on the greenback, providing some support for the AUD/USD pair.

Analysts at Bank of New York Mellon noted that the RBA's previous rate hikes have been passed through to the real economy, with higher borrowing costs and a stronger Australian dollar tightening financial conditions. However, they believe that the current monetary policy stance has become sufficiently restrictive, helping to bring inflation back into its target range.

The short-term weakness of the AUD remains unchanged, but downside room is expected to be limited, with the 0.7000 level serving as a key psychological support.