AUD traders ‘sold the fact’ as RBA hiked by 50-bps as expected

Summary of the statement

Inflation in Australia is also high, but not as high as it is in many other countries
Inflation is forecast to peak later this year and then decline back towards the 2–3 per cent range next year.
The Australian economy remains resilient.
Unemployment rate lowest in nearly 50 years.
Household spending remains an ongoing source of uncertainty.
The recent spending data have been positive, although household budgets are under pressure from higher prices and higher interest rates.
The Board expects to take further steps in the process of normalising monetary conditions in Australia over the months ahead.

The RBA opted for a second consecutive 50-bps hike, taking their OCR (Overnight Cash Rate) to 1.35% from 0.85%. It’s their third hike in as many meetings which has seen the central bank lift their base rate by 125-bp.

Yet with the RBA themselves expecting inflation to rise to 7% by the year end, it remains debatable as to whether the RBA are being aggressive enough. Consumer expectations rose to 6.7% in June and risk becoming anchored, weighing on demand and keep realised inflation high.

However, whilst uncertainties remain (Ukraine, household spending), the RBA see the economy as ‘resilient’ with unemployment sitting near a 50-year low. Like most central banks, the RBA is treading a fine line between successfully taming inflation and tipping the economy into a recession. So the question from here is how many more hikes they have up their sleeve to steady inflation (and expectations) without rocking the economic boat.

The RBA meet five more times in 2022

The RBA have the opportunity to change rates at any of the five meetings between August and December this year. With money markets implying a rate of ~3% rate by the year end and rates currently at 1.35%, it allows for an average hike of 33-bps at each of those five meetings.

Perhaps they will not hike at every meeting and opt for a ‘pause’ (as some Fed members have suggested for September). Personally, I suspect the RBA will hike by 50-bp in August and September to get the more ‘aggressive’ hikes out of the way earlier, then revert to 25-bp increments and perhaps a 15-bp hike in December to take rates to a cool 3.0%. But if inflation steadies then it’s also possible they may only hike rates closer to 2.5% by December.

The RBA will be in a better position to be data dependant after the latest inflation data, which is scheduled for the 27^th of July, and that will help us (and the RBA) better gauge their trajectory going forward.

AUD/USD wipes early gains post-RBA

AUD/USD was quick to sell off as soon as the 50-bp hikes hit the screen. The battler finds itself at an interesting juncture from a technical perspective. The pair has seen a solid rebound since its false break of 0.6800 and has found support above its weekly pivot point. Yet the 50-bar eMA and bearish trendline are now acting as resistance. Should the US dollar regain strength then a break beneath 0.6840 assumes a seeing high has been seen. To switch to a bullish bias with greater conviction I’d prefer to wait for a break above the 0.6200 resistance zone.

How to trade with City Index

You can easily trade with City Index by using these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.