RBA continues to pursue a strict policy

The Reserve Bank of Australia (RBA) made the decision to raise interest rates on Tuesday, expressing concerns about the persistently high inflation in the country. The governor of the RBA explained that the move was driven by the risk of inflation surpassing the target range and the prolonged timeline for inflation to return to the desired level.

The RBA increased the cash target rate by 25 basis points to 4.10%, going against the expectations of most analysts, who predicted the rate to remain unchanged. This hike, which comes after an unexpected raise in May, marks the first time in almost 12 years that interest rates have exceeded 4%.

The decision to raise interest rates was prompted by recent data indicating an unexpected increase in Australian consumer inflation in April, approaching levels not seen in nearly 30 years due to persistently high housing and fuel prices. Although the April inflation reading of 6.8% was lower than the peak of over 8%, it remained significantly above the RBA's target range of 2% to 3%. The RBA has projected that headline inflation, currently around 7%, will return to the top of the bank's target range of 2% to 3% by mid-2025, following a slower path compared to many other economies.

Services price inflation in the country remained high, with rising rents, impending electricity price hikes, briskly increasing unit labor costs without a corresponding productivity pickup, and the potential for medium-term inflation expectations to rise. While the governor highlighted four areas that the RBA would closely monitor in future policy decisions: the global economy, household spending, growth in unit labor costs, and inflation expectations.

Australia maintained a robust current account surplus in the first quarter of 2023, primarily due to steady commodity exports. The country's current account surplus expanded in the March quarter, supported by strong exports of resources and travel services. However, an unexpected drop in the trade surplus is now anticipated to impact first-quarter GDP by 0.2 percentage points.

Nonetheless, Australia's key commodity exports faced challenges in the first half of 2023 due to worsening global economic conditions, leading to decreased demand. Concerns over China contributed to a crash in metal prices, further impacting the profitability of commodity exports.

The RBA cautioned that additional monetary tightening might be necessary to bring inflation back within the target range. However, this could result in a temporary deterioration in Australian economic growth. The first-quarter GDP reading, which is due on Wednesday, is expected to reflect this situation.

On the global front, the U.S. dollar strengthened on Tuesday as investors focused on the likelihood of the Federal Reserve continuing to raise rates. While some investors expect the Fed to pause the hike in June to evaluate the impact of higher rates on the economy before potentially resuming rate increases in July. Data from the New York Fed indicated that supply chain pressures cooled in May, providing some relief from the inflationary pressures that had been driving global inflation.

The Australian dollar, on the other hand, rose versus the US dollar following an unexpected hike in interest rates. As a result, the Australian dollar is projected to decline somewhat and stabilize in the range before the upcoming Fed policy meeting.

Data for Technical Analysis (5H) CFD AUD/USD

Resistance : 0.6682, 0.6686, 0.6694

Support : 0.6666, 0.6662, 0.6654                  

5H Outlook

Source: Investing.com  

Buy/Long 1 If the support at the price range 0.6661 - 0.6666 is touched, but the support at 0.6666 cannot be broken, the TP may be set around 0.6687 and the SL around 0.6658, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6682 - 0.6687, TP may be set around 0.6700 and SL around 0.6662, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6682 - 0.6687 is touched, but the resistance at 0.6682 cannot be broken, the TP may be set around 0.6666 and the SL around 0.6690, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6661 - 0.6666, TP may be set around 0.6650 and SL around 0.6678, or up to the risk appetite.       

Pivot Points Jun 07, 2023 02:41AM GMT

Sources: Investing 1, Investing 2