The Australian dollar is slightly higher today. AUD/USD is trading at 0.6936, up 0.22% on the day.
The RBA will be in focus for the second time this week, with the release of the RBA Monetary Statement on Friday. The RBA raised the cash rate on Tuesday to 1.85%, up from 1.35%. The statement is released every quarter, and with the central bank in the midst of a rate-tightening cycle in a massive battle to tame inflation, the statement should make for interesting reading and perhaps have some impact on the Australian dollar.
After this week’s rate hike, Governor Lowe hinted that additional rate hikes were coming, but said that the RBA was not on a “pre-set path” and would be driven by the data. Lowe added that the RBA would do whatever is necessary to reduce inflation back to target “over time”. With the RBA projection that inflation will be around 7.75% over 2022 and the Bank’s inflation target between 2% and 3%, clearly, the Bank has more work to do and will have to continue tightening policy. The pace and extent of the increases are the magic questions, and the strength of the August data will be an important consideration in rate policy ahead of the next meeting on September 6th.
Fed reminds markets that rate hikes aren’t over
The markets have been ignoring a deep yield inversion and equities continue to rise, while the dollar retreat continues. There is a perception that the is Fed nearing the end of its rate-tightening cycle, but Fed policymakers are trying to dispel that notion. A host of Fed members have been sending out the message this week that the inflation battle is far from over and further rate hikes are coming. James Bullard, head of the St. Louis Fed, said that he expects 1.5% or more in rate increases this year and the hikes won’t peak until the Fed is convinced that inflation is easing lower. Bullard downplayed the consecutive quarters of negative growth in the US, saying that the strong US labour market was proof that the US was not in a recession. The Fed does not meet again until September 21st, giving policy makers a chance to digest some inflation and nonfarm payroll reports ahead of the next hike, which is expected to be 50bp or 75bp.
- AUD/USD is testing resistance at 0.6968, followed by resistance at 0.7056
- There is support at 0.6904 and 0.6816
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