RBA Holds Rates Steady, Eyes Future Hikes Amid Inflation Pressure

The Reserve Bank of Australia (RBA) chose to keep interest rates unchanged during its latest policy-setting meeting. The decision was driven by the need to evaluate the economic consequences of the previous rate hikes. However, the RBA indicated that it may implement additional rate increases in the future due to persistent high inflation levels.

The cash target rate was maintained at 4.10%, contrary to expectations of a 25 basis point increase, following unexpected rate hikes in May and June. While inflation has slightly decreased from its peak in May, core inflation remains high, indicating continued price pressures in the country.

Initially, the Australian dollar experienced a 0.4% decline yesterday, but it subsequently recovered all losses. This recovery can be attributed to traders' anticipation of at least one more rate hike in the ongoing cycle. The market's expectations have shifted to imply a 50-50 chance of a hike to 4.35% in August.

Governor Philip Lowe emphasized that achieving the RBA's inflation target is a challenging task. High inflation has significantly impacted Australian household spending, which is a crucial driver of the economy. However, despite high inflation, the job market has remained resilient, with unemployment moving back toward 50-year lows in May.

Australian consumer inflation in May grew at a slower pace than expected, primarily due to weaker fuel prices. However, a core reading indicated that underlying inflation in Australia remained strong and is likely to continue pressuring retailers in the coming months.

Despite rising interest rates and a high cost of living, Australian retail sales in May exceeded expectations, reaching a six-month high. The growth was primarily driven by food retailing, with demand for eating out and takeaway food consistently increasing sales. However, the Australian Bureau of Statistics noted that higher food costs, which have risen steadily due to supply-side shortages over the past year, have contributed to this growth.

Australian home prices continued their upward trend in June, rising for the fourth consecutive month. The sustained increase in housing values nationwide can be attributed to a shortage of housing supply.

In the foreign exchange market, the U.S. dollar stabilized during yesterday. The upcoming employment data will likely influence the Federal Reserve's next move regarding interest rates. Therefore, it is anticipated that the Australian dollar will experience a slight decline relative to the US dollar since the returns from the currency pairs exhibit notable discrepancies. However, the potential weakening of the Australian dollar is expected to be somewhat restricted due to the prospects of future interest rate increases by the Reserve Bank of Australia (RBA).

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

Resistance : 0.6697, 0.6699, 0.6703

Support : 0.6689, 0.6687, 0.6683         

5H Outlook

Source: Investing.com   

Buy/Long 1 If the support at the price range 0.6679 - 0.6689 is touched, but the support at 0.6689 cannot be broken, the TP may be set around 0.6697 and the SL around 0.6674, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6697 - 0.6707, TP may be set around 0.6718 and SL around 0.6684, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6697 - 0.6707 is touched, but the resistance at 0.6697 cannot be broken, the TP may be set around 0.6687 and the SL around 0.6712, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6679 - 0.6689, TP may be set around 0.6670 and SL around 0.6702, or up to the risk appetite.       

Pivot Points Jul 05, 2023 02:30AM GMT

Sources: Investing 1, Investing 2