AUD/USD pushes higher as inflation risks rise, ASX 200 loses traction

• Australia unemployment holds at 4.3% in March, in line with expectations
• Consumer inflation expectations surge, hitting highest level since late 2022
• RBA April hike priced ~70%, with one more seen by year-end
• AUD/USD stages bullish breakout, eyes .7283
• ASX 200 looks heavy after breakneck rally

Summary

Australia’s labour market is holding firm and inflation expectations are lifting, keeping pressure on the RBA to push policy into more restrictive territory, supporting AUD/USD as it breaks key resistance and eyes further upside. But that same hawkish rates story is weighing on equities, with the ASX 200 struggling beneath resistance as higher yields, valuation headwinds and fading momentum begin to skew directional risks lower. 

Labour market steady, detail still firm

Australia’s March labour market report was bang in line with market expectations. Unemployment held at 4.3%, matching the RBA’s 4.3% forecast for the first half of 2026. Employment rose 18,000, close to the 20,000 expected, while participation dipped a tenth to 66.8%.

The underlying detail was firmer than the headline figures would suggest. Full-time employment surged 53,000, offsetting a 35,000 fall in part-time roles. Hours worked increased 0.5%.

Underemployment edged higher, pushing underutilisation up 0.1 percentage points to 10.1%. Despite the uptick, both remain at levels that have historically been consistent with wage pressures. With price pressures already elevated, that adds to the risk inflation will accelerate further in the months ahead.

That risk is now clearly evident in consumer inflation expectations.

Inflation expectations lift sharply

Source: TradingView

The Melbourne Institute’s measure for the year ahead rose 0.7 percentage points to 5.9% in April, the highest since November 2022, reflecting the jump in oil prices. With unemployment holding at 4.3% and inflation expectations lifting, that keeps pressure on the RBA to get policy settings to more restrictive levels.

Two RBA hikes expected by year-end

Source: TradingView

Reflecting the lack of surprise in the jobs report and the underlying composition, pricing for an RBA rate hike later this month continues to hold around 70%, with another hike fully priced by year-end.

That hawkish outlook has lifted Australian bond yields further out the curve, with widening rate differentials combining with firm risk appetite and gains in other Asian currencies to push the Australian dollar towards fresh cyclical peaks against the US dollar.

AUD/USD breakout gaining traction

 

Source: TradingView

AUD/USD looks great on the daily chart, springing from beneath the 50DMA earlier this week to break and close above the important 0.7158 level which marks the swing high set in February 2023. That differentiates this bullish break from those earlier in the year that fizzled above the level.

As long as the price can remain above 0.7158, the probability increases that bulls may look to take out the March high around 0.7190, opening the door for a potential run towards the June 2022 swing high of 0.7283. Both RSI (14) and MACD favour upside over downside, with the former trending higher above 50 while the latter has flipped positive after crossing the signal line, strengthening the bullish message.

That favours buying dips and bullish breakouts. Should AUD/USD hold above 0.7158, longs could be set with a tight stop beneath for protection, targeting the March high initially with 0.7283 the ultimate target overhead. Should the price slide back beneath 0.7158, it would invalidate the bullish bias, opening the door for short setups targeting lower levels.

ASX 200 showing signs of topping

Source: TradingView

While the Aussie is loving the hawkish rates outlook, the ASX 200, Australia’s benchmark share index, is not. The move is weighing on offshore earners and creating valuation headwinds for an index that already trades at historically rich levels. Throw in the lack of a major tech sector and it’s struggling while more growth-heavy markets elsewhere are flying.

You can see the price ran into sellers above 9050 earlier this week, with the string of lower highs since suggesting they are slowly getting the upper hand after a period where bulls dominated. 8950 is where the price bounced earlier this week, making it an immediate reference point on the downside, although a more meaningful support zone sits from 8900 with a cluster of moving averages just below. That’s the focal point for anyone lining up short setups in the near term.

If the price were able to break and hold above 9050, it would suggest the uptrend is reasserting, potentially encouraging bulls to re-engage looking for a retest of the record highs.

Like the price action, RSI (14) is rolling over, breaking the uptrend in place since mid-March. While it remains above 50, upside strength is fading, a message that looks set to be confirmed by MACD given it’s starting to curl back towards the signal line. It’s a more neutral read than anything, but it warns that directional risks may be starting to shift.