Aussie higher ahead of RBA decision

The Australian dollar has posted strong gains today. In the North American session, AUD/USD is trading at 0.7036, up 0.67% on the day.

RBA expected to hike by 50 bp

The Reserve Bank of Australia meets on Tuesday and is expected to deliver a third straight hike of 0.50%. This would bring the Cash Rate to 1.85%. The markets have priced in a 50bp increase at 0.75%. The central bank continues to grapple with rising inflation, with CPI in the second quarter rising to 6.1%, up sharply from 5.1% in Q1. Australian Treasurer Chalmers told parliament on Thursday that the government expects inflation to peak at 7.75% in Q4, and will gradually ease in 2023 and fall to 2.75% in 2024.

If Chalmers’ number crunching is accurate, then the cost of living crisis will worsen before it improves and the central bank will likely have to keep tightening, with plenty more inflation to come.  Chalmers noted that the country’s biggest headwinds are surging inflation and slowing global growth. The government revised lower its GDP forecast for 2021-22 to 3.75%, down from 4.5%, and the 2022-2023 forecast from 3.5% to 3.0%.

The RBA has a delicate task of raising rates to curb inflation but not slowing the economy to the extent that it tips into a recession. The labour market remains robust, an important indication that the economy is strong enough to withstand further rate hikes. Tuesday’s rate hike, if 0.50% as expected, is unlikely to impact on the Australian dollar, except perhaps for some short-lived reaction after the rate announcement, as external factors are the main driver behind the Aussie’s movement.

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AUD/USD Technical

• AUD/USD is putting pressure on resistance at 0.7056. Above, there is resistance at 0.7120
• There is support at 0.6968 and 6904

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.

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