RBA Hints at Rate Hike Amid Inflation Concerns

The Reserve Bank of Australia (RBA) contemplated an interest rate hike in its February meeting, as indicated by meeting minutes released on Tuesday. Despite holding the official cash rate target at 4.35%, some members proposed a 25 basis points increase, reflecting the bank's unexpectedly hawkish stance.

Concerns persisted over persistent inflation, although recent data showed a decline in the Australian consumer price index inflation by the end of 2023, it remained above the RBA's 2-3% target. The RBA anticipates inflation to reach the target range by mid-to-late 2025, with further economic cooling and an uptick in unemployment expected. The meeting minutes also revealed the RBA's readiness to decrease interest rates if the Australian economy weakened beyond initial expectations.

The market currently believes the tightening cycle is over, projecting a modest easing of 36 basis points for 2024, likely in the second half of the year, with the first cut anticipated in August or September.

Recent data showed that Australia's employment space grew less than expected in January, resulting in a higher-than-anticipated unemployment rate of 4.1%. The total number of employed people increased by only 500, falling significantly short of the estimated 26,400, maintaining the participation rate at 66.8%.

The Australian Bureau of Statistics reported a robust annual wage growth of 4.2% in the fourth quarter, the highest in 15 years. However, analysts foresee a moderation in wage growth as the economy falters.

The U.S. dollar declined as record-high share markets boosted optimism across asset classes, with traders assessing positive business activity surveys for potential interest rate implications. The Federal Reserve, according to its recent meeting minutes, maintained a cautious approach on rate cuts, with traders now pricing in a reduced 30% chance of rate cuts in May, down from over 80% a month earlier.

In the U.S., despite a cooling in business activity, positive inflation news and signs of a housing market recovery surfaced. A surprising drop in unemployment benefit claims last week indicated robust job growth in February. Furthermore, despite weak January data attributed to weather conditions, existing home sales in January increased by 3.1%, reaching the highest level since August. This uptick was driven by buyers capitalizing on lower mortgage rates and an improved supply. Consequently, there could be continued slight downward pressure on the Australian dollar relative to the US dollar, primarily due to the persisting disparity in the economic performance of the two countries. However, there is a possibility of a modest upward correction influenced by the strength of economic data.

Data for Technical Analysis (1H) CFD AUD/USD

Resistance : 0.6575, 0.6579, 0.6585

Support : 0.6561, 0.6557, 0.6551

1H Outlook   

Source: Investing.com

Buy/Long 1 If the support at the price range 0.6551 - 0.6561 is touched, but the support at 0.6561 cannot be broken, the TP may be set around 0.6579 and the SL around 0.6546, or up to the risk appetite.

Buy/Long 2 If the resistance can be broken at the price range of 0.6575 - 0.6585, TP may be set around 0.6596 and SL around 0.6556, or up to the risk appetite.       

Sell/Short 1 If the resistance at the price range 0.6575 - 0.6585 is touched, but the resistance at 0.6575 cannot be broken, the TP may be set around 0.6561 and the SL around 0.6590, or up to the risk appetite.

Sell/Short 2 If the support can be broken at the price range of 0.6551 - 0.6561, TP may be set around 0.6544 and SL around 0.6580, or up to the risk appetite.       

Pivot Points Feb 23, 2024 02:31AM GMT