- The Australian central bank shocked the markets by increasing its cash rate by 25bps.
- The RBA hinted that “some further tightening” could be needed.
- First-quarter consumer price data showed Australia’s inflation slowed from 33-year highs.
Today’s AUD/USD outlook is bullish. On Tuesday, the Australian central bank shocked the markets by increasing its cash rate by 25 basis points. Investors were expecting a long pause. Citing extremely high inflation, the bank warned that more tightening might be necessary.
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Markets swiftly raised the peak for interest rates due to the unmistakably hawkish policy stance. They sent the Australian currency surging and bond futures falling.
In its final statement following its May policy meeting, the Reserve Bank of Australia (RBA) increased interest rates to 3.85%. It hinted that “some further tightening” could be needed for inflation to reach the target level in a “reasonable timeframe.”
Markets and most analysts had been heavily betting on a steady outcome. Futures fell as the market factored in the new rate of 3.85%. There is now a 60% probability that rates may rise to 4.10% by August.
Last week’s first-quarter consumer price data showed that inflation slowed from 33-year highs. The RBA’s most recent projections indicate inflation will eventually return to 3% by mid-2025.
As opposed to the earlier prediction of 4.75%, inflation is projected to drop to 4.5% this year.
Australia’s fight against inflation reflects a global effort by policymakers. They are concerned that if hot prices aren’t quickly controlled, they will cause more economic harm.
AUD/USD key events today
Investors will watch the JOLTs job openings report from the US that will show available vacancies in the country. It will also give a clear picture of the state of the labor market.
AUD/USD technical outlook: Bulls looking for sustained move above 0.6700
AUD/USD has shot up in the 4-hour chart. The bias here is bullish. Bulls took over after the RSI made a bullish divergence. The price broke above the 30-SMA resistance before retesting it and pushing higher. It also broke above the 0.6650 resistance and has now paused at the 0.6700 key resistance.
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The RSI is trading above 50 but has not reached the overbought region yet. Therefore, there is still room for bulls to push higher. With this in mind, we might see the price break above 0.6700 and retest at 0.6751.
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Saqib Iqbal
