After announcing the first rate increase in more than a decade, the Reserve Bank of Australia (RBA) is up for another hawkish monetary policy outcome and Interest Rate Decision around 04:30 AM GMT on Tuesday.
The RBA is expected to increase the benchmark interest rate by 25 basis points (bps) to 0.60%, mainly to fight inflation and join the league of its foreign friends.
However, the Aussie central bank will remain behind the likes of the Fed and RBNZ, not to forget the BOE and BOC, which makes today’s RBA rate hike interesting. As a result, the RBA Rate Statement will be more important to watch and forecast near-term AUD/USD moves.
Ahead of the event Westpac said,
The RBA, following other central banks around the world, needs to not only unwind the covid stimulus measures, but to combat a significant inflation challenge – in a world of supply headwinds, including disruptions from the Russia / Ukraine conflict. The enormity of the challenge, including risks that inflation expectations could decouple, points to a front loading of rate hikes. Westpac expects a 40bps move in July, with the cash rate climbing to 1.75% by year-end and to peak at 2.25% by mid-2023. Economists are split between 25bp, 40bp and 50bp and market pricing is skittish, around 33bp.
On the other hand, FXStreet’s Valeria Bednarik says,
As said, a 25 bps hike has been already priced in. If somehow the RBA decided to slow down and go for 0.10% or 0.15%, AUD/USD could come under selling pressure, although if the current market’s optimism persists, the slide should be limited. On the other hand, a 40 bps hike plus hints on more interest rate raises coming would result in the AUD/USD pair surging to fresh monthly highs.
How could the RBA decision affect AUD/USD?
AUD/USD stays pressured around 0.7175 as it prints a three-day downtrend ahead of the key RBA interest rate decision. The Aussie pair’s latest moves could be linked to the market’s anxiety ahead of the RBA’s verdict, as well as firmer yields and the risk-off mood.
That being said, the RBA’s 0.25% rate hike is already known and may not even put the Aussie bank near the other major central banks, which in turn suggests the AUD/USD pair’s likely limited bullish reaction in case of a rate lift to 0.60%. Also challenging the moves could be the looming 0.50% Fed rate increase and fears ahead of the US Consumer Price Index (CPI), as the European Central Bank (ECB) meeting.
Hence, AUD/USD prices may portray a knee-jerk reaction to the 0.25 bps rate hike from the RBA. However, the bears are less likely to relinquish control.
Technically, a clear downside break of the three-week-old ascending trend line, around 0.7240 by the press time, directs AUD/USD bears towards the 20-DMA support near 0.7085.
Key quotes
Reserve Bank of Australia Preview: Rate hikes are here to stay
Australia 10-year Treasury yields, ASX 200 portray pre-RBA anxiety
About the RBA interest rate decision
RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.