The ASX 200 Index retreated in the last two consecutive days, while the AUD/USD exchange rate rose to the highest level in years after the latest Australian consumer inflation report. The index retreated to A$8,925 from the year-to-date high of A$8,990.
On the other hand, the AUD/USD exchange rate jumped to a high of 0.7010, its highest level since February 2023. It has jumped by over 18% from its lowest level in April last year.
Odds of RBA interest rate hike jump as Australian inflation jumps
The ASX 200 Index dropped, and the AUD/USD exchange rate rose after the Australian Bureau of Statistics (ABS) showed that Australia’s inflation continued rising in December, raising the possibility that the Reserve Bank of Australia (RBA) will hike interest rates in the upcoming meeting.
The report showed that the headline CPI rose from 0% in November to 1.0% in December, higher than the analysts’ estimate of 0.7%.
This growth led to an annual increase of 3.8%, higher than the November inflation of 3.4% and the median estimate of 3.6%.
More data showed that the quarterly trimmed mean CPI rose from 3% to 3.4%, while the weighted mean inflation rose to 3.6%. All these numbers are much higher than the RBA target of 2.0%.
The report came a week after the agency published strong jobs numbers. A report showed that the unemployment rate dropped to 4.1% as the economy created over 54.5k jobs. The participation rate rose to 66.7% from the previous 66.6%.
Therefore, a combination of strong job numbers and high inflation is conducive to an interest rate hike. This explains why Australian bond yields continued rising, with the ten-year yield rising to 4.89%, its highest level since November 2023. Also, the five-year yield rose to 4.47% from last year’s low of 3.416%.
An RBA interest rate hike would be highly bullish for Australian banks, which explains why their stocks continued rising. Top banks like Westpac, ANZ, Commonwealth Bank, and NAB have done well in the past few weeks.
ASX 200 Index technical analysis
The daily timeframe chart shows that the ASX 200 Index has been in a strong uptrend in the past few weeks, moving from a low of $8,377 to a high of $8,985.
It has formed an ascending channel, and recently retested its upper side. A closer look shows that the index formed an evening star candlestick pattern. A morning star is made up of a small body, a small upper, and small lower shadow.
The Relative Strength Index (RSI) has continued moving downwards, moving from a high of 68 on January 26 to the current 63.
Therefore, the most likely ASX 200 Index forecast is bearish, with the next key support level being at $8,820, the lower side of the ascending channel.
AUD/USD forecast: Technical analysis
The three-day timeframe chart shows that the AUD/USD exchange rate has been in a strong uptrend in the past few months, moving from a low of 0.5915 in April last year to a high of 0.7020.
It crossed the important resistance level at 0.6900, its highest level in September 2025. The pair has remained above the 50-day and 100-day Exponential Moving Averages (EMA).
It moved above the Ultimate Resistance level at 0.6835 and the overshoot level at 0.6958. It also formed an inverse head-and-shoulders pattern.
Therefore, the most likely scenario is where the AUD/USD pair continues rising as bulls target the key resistance level at 0.7100.
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