AUD rallies after a surprise hike

BY Janne Muta

|May 2, 2023

The Reserve Bank of Australia (RBA) surprised the markets by implementing a 25 basis point interest rate hike, leading to a strong rally in the AUDUSD currency pair. The decision comes as the central bank aims to address the high inflation rate in Australia, currently at 7%, and bring it back to the target range of 2-3%.

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Despite a decline in goods price inflation, services price inflation remains elevated. The labour market remains tight with low unemployment, although there has been a slight easing in labour shortages. The RBA's primary focus is to mitigate the negative impact of high inflation on the economy and individuals. While wages have increased, concerns persist regarding their potential impact on prices and wages.

The economy is projected to grow below trend, and household consumption is uncertain due to various factors. The global economy is also expected to experience below-average growth. Further adjustments to monetary policy may be necessary depending on economic and inflation developments. The RBA will closely monitor global economic trends, household spending, inflation, and the labor market as it works towards achieving its inflation target.

Regulators have taken over First Republic Bank, a struggling lender, and agreed to sell most of its operations to JPMorgan Chase. According to WSJ, this move has prevented a potential collapse of the bank and shifted the focus back to the upcoming interest rate decision by the Federal Reserve. The major equity indices closed almost flat. with slight losses of less than 0.1%. However, regional banks, including PNC Financial, U.S. Bancorp, and KeyCorp, performed poorly on the news.

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AUDNZD is bullish above 1.0725. Below the level, the market could trade to 1.0685. Above 1.0725 look for a move to 1.0890. The surprise rate hike, even though only 25 bp, from the RBA rallied the market. According to the RBA further tightening of monetary policy may be required to ensure inflation returns to the target range in a reasonable timeframe. However, the central bank points out that whether or not there will be more rate hikes depends on how the economy and inflation evolve. But at the end of the day, the RBA is most likely to follow the Fed so let’s see what Fed signals about future rate hikes tomorrow.

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DJ remains bullish above 33 640. Below the level, the market could trade to 33 550. The market traded down to this level on Friday and rallied strongly breaking above 33 860. This allowed the market to move to the 34 100 level we referred to on Friday. The bearish shooting star candle in the daily timeframe chart from yesterday indicates the market could retrace a lower before the green team can take control again. The 33 860 is the nearest key support level.

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GBPUSD is bullish above 1.2436. Below the level, Cable might trade down to 1.2415. Above 1.2436 look for a move to 1.2584 and then to 1.2660 on extension. The market is trending higher in the 4h timeframe and is therefore more likely to move higher. However, if it starts to break supports, the bias might have to change and we’d need to look for signs of weakness to justify market exposure on the short side.

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EURJPY is bullish above 150.30. Below the level, the pair could trade down to 149.60. Above the 150.30 level, the market might trade to 153.40. The recent comments from the new Bank of Japan (BOJ) governor, reaffirming a dovish stance, have contributed to the strong upward trend of EURJPY.

The Next Main Risk Events

  • EUR CPI Flash Estimate y/y
  • EUR Core CPI Flash Estimate y/y
  • AUD RBA Gov Lowe Speaks
  • USD JOLTS Job Openings
  • NZD Employment Change q/q
  • NZD Unemployment Rate
  • NZD RBNZ Gov Orr Speaks
  • USD ADP Non-Farm Employment Change
  • USD ISM Services PMI
  • USD FOMC Statement
  • USD Federal Funds Rate
  • USD FOMC Press Conference
  • EUR Main Refinancing Rate
  • EUR Monetary Policy Statement
  • USD Unemployment Claims
  • EUR ECB Press Conference
  • CAD Ivey PMI
  • CAD BOC Gov Macklem Speaks
  • AUD RBA Monetary Policy Statement
  • CHF CPI m/m
  • CHF SNB Chairman Jordan Speaks
  • CAD Employment Change
  • CAD Unemployment Rate
  • USD Average Hourly Earnings m/m
  • USD Non-Farm Employment Change
  • USD Unemployment Rate

For more information and details see the TIOmarkets economic calendar.

Trade Safe!

Janne Muta
Chief Market Analyst

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Janne Muta

Janne Muta holds an M.Sc in finance and has over 20 years experience in analysing and trading the financial markets.

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