RBA hike boosts AUD with market sentiment broadly steady
- RBA hikes: A 25bps hike caught markets by surprise, but could there be more to come?
- USD eases back slightly: The USD jumped yesterday on major forex but is paring gains today. The NZD is following the AUD higher.
- Equities are steady: European indices are slightly higher today with US futures a shade higher
- Mixed metals, oil slips: In commodities, precious metals continue a choppy phase, whilst oil has eased off after a rebound late last week.
RBA hikes, “some further tightening” may be required
The Reserve Bank of Australia (RBA) has surprised many in the market by announcing a 25 basis point increase in the cash rate.
This move has taken the rate to 3.85%, having held the level at 3.60% since March.
Money markets had been positioned for no change, whilst according to Bloomberg, 21 of 30 analysts had also expected the RBA to stand pat.
According to the statement from Philip Low, Governor of the RBA:
“Some further tightening of monetary policy may be required to ensure that inflation returns to target in a reasonable timeframe, but that will depend upon how the economy and inflation evolve.”
Inflation is falling but is still “too high”
Quarterly inflation fell to 7.0% in Q1.
Furthermore, measured on a monthly basis, Australian CPI inflation peaked at 8.4% in December and has been falling consistently since, to the latest March reading of 6.3%.
However, according to a change in the projections from the RBA:
- Inflation is expected to fall to 4.5% in 2023 (previously expected to be 4.75%)
- Inflation is only expected to fall to 3.0% (the top of the RBA’s 2% to 3% target band) in mid-2025.
Lowe stated that:
“(Inflation) at 7 percent is still too high and it will be some time yet before it is back in the target range.”
Is there more to come from the RBA?
Inflation has seemed to have peaked and the recent data for March came in lower than expected.
So, this was certainly an unexpected move by the RBA this morning.
The question is whether there is more to come.
The statement from Lowe does talk about “some further tightening” to come (although dependent on the economy and inflation).
Inflation not getting back towards the target for another two years is a long time and opens the door for another hike.
The interest rate futures market has had a quick re-pricing and is close to 4.00% now with the peak coming around the August meeting.
AUD gets a boost
Markets move when they get unexpected news.
The AUD has been significantly boosted by this, being a clear outperformer on major forex today.
Another bi-product of this move is that the NZD is also following the AUD higher.
Perhaps there is room for further hikes by the central banks “Down Under”.
The outlook for AUD has improved
There have been some strong recovery gains by the AUD this morning.
This is playing out on AUD/USD and more significantly on AUD/JPY.
The market has jumped this morning.
On a medium-term basis, the trading range between 0.6565/0.6805 remains intact.
A big bull candle has accelerated the pair higher to strengthen the support of the March low at 0.6565.
- A close above the resistance 0.6680/0.6705 will be near-term bullish.
- Momentum is improving with the daily RSI swinging above 50.
The next important resistance is 0.6770 before the top of the two-and-a-half-month range at 0.6805.
The impressive move for the Aussie is the pair with the Japanese yen.
A sharp acceleration higher of recent sessions continues.
Three huge bull candles in a row have smashed through mid-range resistance at 90.22/90.77.
- The run higher is now on course for a test of the key trading range resistance at 92.80/93.35.
- Momentum is strong with the RSI into the mid-60s with upside potential still.
There is good support now around the 90.77 breakout.
Support and resistance levels for Forex, Commodities, and Futures/Indices
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|S&P 500 futures
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