Market expects two more rate hikes by RBA

One of Australia's Big Four banks and the country's first and oldest bank, Westpac, has changed its prediction for the peak of the country's cash rate to 4.6% and anticipates quarter-point rate increases in July and August. This is consistent with predictions made by other big banks that the central bank's more hawkish approach will lead to higher interest rates and weaker economic growth.

Currently, rates are already at an 11-year high of 4.1%, but the Reserve Bank of Australia (RBA) suggests that additional hikes may be necessary to control inflation. Governor Philip Lowe recently cautioned about potential risks that could hinder inflation from reaching the RBA's target of 2% to 3% by mid-2025.

The Australian employment situation surpassed expectations in May, with an increase in employment, a decrease in the jobless rate, and a record-high participation rate. This remarkably strong labor force report places pressure on the central bank to further raise interest rates. Despite previous policy tightening, employment continues to rise, leading markets to predict a split chance of a rate hike in July.

In light of these developments, Westpac has adjusted its economic growth forecast to 0.6% for this year, down from the previous projection of 1%. Additionally, the bank predicts the unemployment rate to reach 5.3% by the end of 2024, compared to the 3.6% recorded in May.

Following the release of the strong labor force report, the bond yield curve, which was already signaling recession risks through inversion, further inverted. The negative spread between 10-year and three-year government bond yields reinforces concerns about the economic outlook.

Moving on to the global market, U.S. dollars traded lower on Monday morning. Major benchmark averages experienced a strong week, supported by easing consumer price index (CPI) data and a temporary pause from Federal Reserve policymakers. Therefore, it is expected that the US dollar will bounce back slightly stronger than the Australian dollar during this period.

Looking ahead, investors will closely monitor various economic indicators. These include preliminary building permits and housing starts data, Q1 current account data, existing home sales figures, as well as Markit's preliminary manufacturing and services purchasing managers' indexes (PMIs).

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

Resistance : 0.6878, 0.6888, 0.6904

Support : 0.6846, 0.6836, 0.6820             

5H Outlook

Source: Investing.com

Buy/Long 1 If the support at the price range 0.6838 - 0.6846 is touched, but the support at 0.6846 cannot be broken, the TP may be set around 0.6879 and the SL around 0.6834, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6878 - 0.6886, TP may be set around 0.6910 and SL around 0.6841, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6878 - 0.6886 is touched, but the resistance at 0.6878 cannot be broken, the TP may be set around 0.6837 and the SL around 0.6890, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6838 - 0.6846, TP may be set around 0.6815 and SL around 0.6883, or up to the risk appetite.       

Pivot Points Jun 19, 2023 02:42AM GMT

Sources: Investing 1, Investing 2