- The Reserve Bank of Australia lifted its rates, causing the Australian dollar to soar.
- The dollar fell after unexpectedly weak US services data.
- Markets reflect an above-even likelihood of another rate increase next month.
Today’s AUD/USD outlook is bullish. On Tuesday, the Reserve Bank of Australia boosted interest rates, causing the Australian dollar to soar to its highest level since mid-May. Many analysts had anticipated a close decision between a rate hike and a pause.
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The RBA’s decision to increase the cash rate to the highest in 11 years aimed to instill confidence in bringing inflation back to its target within a reasonable timeframe. The RBA also acknowledged the possibility of further tightening measures. This hawkish message caused the Australian dollar to surge and bond yields to spike.
Consequently, markets swiftly adjusted to reflect an above-even likelihood of another rate increase next month. Concluding its June policy meeting, the RBA increased the cash rate to 4.1%, citing persistently high inflation.
Since May of the previous year, the RBA has implemented a remarkable 400 basis points increase in interest rates, marking its most forceful tightening cycle in recent history. The RBA caught markets off guard by raising rates in May, following only a one-month pause to evaluate its previous tightening measures.
Despite significant hikes in borrowing costs over the past 12-18 months, policymakers worldwide struggle with persistently high inflation. Consequently, some have already decided to pause.
Meanwhile, the US dollar retreated from last week’s 2-1/2-month highs against major currencies. This retreat was fueled by unexpectedly weak US services data, which solidified expectations for a pause at the Federal Reserve’s upcoming meeting.
AUD/USD key events today
After the RBA policy meeting, investors are not expecting any key releases from the US or Australia. Therefore, they will keep digesting the RBA rate hike.
AUD/USD technical outlook: Overbought conditions hint at a potential retreat.
The bias for AUD/USD on the 4-hour chart is bullish because the price is making higher highs and lows. Furthermore, it trades far above the 30-SMA, with the RSI entering the overbought region, indicating strong bullish momentum.
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Bulls have made a strong candle that has broken above the 0.6650 resistance level to make a higher high. However, given the RSI is overbought, we might see a pullback before the bulls retest the 0.6700 resistance.
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