AUD/USD Supported After Hawkish RBA Surprise, Despite GDP Miss

  • AUDUSD
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AUD/USD Analysis

The Reserve Bank of Australia offered another hawkish surprise on Tuesday, since it hiked rates by 0.25%, in order to offer "greater confidence" that inflation will return to the 2-3% target. It also kept the door open to more moves ahead, reiterating its guidance that "some further tightening" in monetary policy "may be required" to achieve its goal. [1]

The Consumer Price Index (CPI) eased to 7% y/y in the in the first quarter, bit is still too far from the target and the RBA does not expect to reach the upper band before mid-2025 [2]. Governor Lowe alluded to that today, waring it is "too early to declare victory in the battle against inflation", although he noted that higher interest rates are working towards that. [3]

The negative impact of the monetary constraints on the economy has been evident, with today's data showing that growth slowed further in Q1, to 2.3% y/y and the lowest in two years. The central bank expects GDP to fall to 1.25% by the end of the year, while its Governor today spoke of "a couple of years of relatively slow growth in the economy". [3]

AUD/USD jumped on Monday after the hawkish surprise by the RBA and despite some pressure after the GDP miss, it remains constructive today. The Australian central bank kept more tightening in play, while its US counterpart is expected to stay on the sidelines next week. CME's FedWatch Tool assigns the highest probability to Fed rates staying at 5.25% in June, but still prices in one more hike after that. [4]

The Aussie stays in profitable territory today and extends its rebound from May's 2023 lows, trading well above the EMA200 and trying to step in the daily Ichimokou Cloud. This brings the last month's highs in the spotlight (0.6818), but AUD/USD has faltered at the 0.6800 multiple times in the recent past.

The Relative Strength Index (RSI) points to overbought conditions, which along with the Ichimokou Cloud can contain the pair's advance. This creates scope for a return back towards 0.6563, although fresh 2023 lows don't look easy at this stage (0.6457-33).

Nikos Tzabouras

Senior Financial Editorial Writer

Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.

With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.

References

1

Retrieved 07 Jun 2023 https://www.rba.gov.au/media-releases/2023/mr-23-13.html

2

Retrieved 07 Jun 2023 https://www.rba.gov.au/publications/smp/2023/may/pdf/statement-on-monetary-policy-2023-05.pdf

3

Retrieved 07 Jun 2023 https://www.rba.gov.au/speeches/2023/sp-gov-2023-06-07.html

4

Retrieved 24 Jun 2024 https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html

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