The calendar this week allows central bankers to finetune some of the tectonic shifts from last week, starting with a plethora of communique from the RBA this morning.
In a speech on Inflation and Monetary Policy at the American Chamber of Commerce in Australia, the RBA Governor followed up his message from last week's interview on the 7.30 report: "Australians should be prepared for more interest rate increases".
Lowe also noted that since the RBA published its latest set of forecasts in early May, that information since then had led the bank to revise higher its end-of-year inflation forecasts, which was behind the 50bp hike in June.
"As a result, we are now expecting inflation to peak at around 7percent in the December quarter. Following this, by early next year, we expect that inflation will begin to decline."
The Governor noted that an easing in inflation pressures is expected to come from a combination of easing supply chain issues, tighter monetary policy in Australia and around the world and a technical factor as inflation is a measure of the rate of change.
Providing some dovish relief, the Governor noted that although the bank was committed to ensuring the inflation rate return to target, he pushed back on expectations that the RBA may follow the lead of the Federal Reserve and raise rates by 75bp. Instead, the Board would debate the merits of raising rates by 25bp or 50bp.
The Governor also hosed down market pricing that the cash rate would reach anywhere near 4% by yearend, noting that "To get to 4 per cent we would need to raise rates by 50 basis points at the remaining six meetings, and have a 75 basis point increase in there as well,"
What does this mean for the RBA's cash rate?
Following the batch of RBA communique and the RBA Governor's comments on the 7.30 Report last week, when he said it is "reasonable" to expect the cash rate to reach 2.5%, the most logical path for the RBA cash rate is for a 50bp rate hike in July, followed by 25bp rate hikes in August, September, October, and November taking the cash rate to 2.35%.
What does it mean for the AUDUSD?
The AUDUSD has been one of the worst-performing currencies in June, down around 2.85% for the month on the back of a sharp selloff in equity markets and commodity prices.
Following the RBA ruling out a 75bp rate hike today, the AUDUSD dropped sharply from .6980 to .6948 before a recovery in Chinese iron ore futures and rebound in Asian equity markets saw support return for the beleaguered AUDUSD battler.
However, with the backdrop of stagflation/recession pressures hanging over commodity prices and the AUDUSD, the upside in the AUDUSD looks limited for the time being towards last weeks. 7075 high. On the downside, support at .6850/30 needs to hold to prevent a deeper pullback towards .6600c
Source Tradingview. The figures stated are as of June 21st 2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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