After announcing two rate increases in the last meetings, the Reserve Bank of Australia (RBA) is up for another hawkish monetary policy outcome during the scheduled Interest Rate Decision around 04:30 AM GMT on Tuesday.
The RBA is expected to lift the benchmark interest rate by 50 basis points (bps) to 1.35%, mainly to fight inflation and join the league of its foreign friends.
With this, the Aussie central bank could reach near the monetary policy hawks like 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,
We expect the RBA to deliver a back–to–back 50bp interest rate hike at the July board meeting, lifting the cash rate from 0.85% to 1.35%. This is in line with the consensus forecast, while markets price 45bp.
On the other hand, FXStreet’s Dhwani Mehta says,
A fully baked-in 50 bps rate hike is unlikely to inspire AUD bulls. Any meaningful recovery in AUD/USD will gain acceptance only on a sustained move above the rising trendline support-turned-resistance at 0.6862. The 14-day Relative Strength Index (RSI) sees a minor pullback from lower levels but remains deep in the bearish territory.
How could the RBA decision affect AUD/USD?
AUD/USD remains on the front foot at around 0.6885 while extending the week-start rebound from the yearly low. In doing so, the Aussie pair justifies recently positive developments surrounding the US-China trade ties and firmer Treasury yields, backed by hopes of a hawkish move by the RBA. However, economic fears join China’s covid conditions to keep the buyers in check.
The RBA’s 0.50% rate hike is already known and may not impress the AUD/USD bulls. Also challenging the moves could be the looming 0.75% Fed rate increase and the anxiety ahead of the Fed Minutes and US Nonfarm Payrolls (NFP).
Hence, AUD/USD prices may portray a knee-jerk reaction to the 0.50 bps rate hike from the RBA. However, the bulls need strongly-worded commentary from the RBA Rate Statement to convince the buyers.
Technically, the convergence of the 10-DMA and the 13-day-old descending trend line, around 0.6900, challenges buyers. Even so, a downward sloping support line from late January, near 0.6755 by the press time, could restrict short-term declines of the AUD/USD pair.
About the RBA interest rate decision
The Reserve Bank of Australia announces RBA Interest Rate Decision. If the RBA is hawkish about the inflationary outlook of the economy and raises 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.
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