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RBA surprised with a larger rate hike sending the Aussie pairs higher

We knew that the RBA had been slow to react, and I guess they don’t want to be accused of being behind the curve with their monetary policy as inflation runs away. We’re now having to price in further rate hikes in the coming period so the Aussie could be about to enter a new trending phase.

Morning Brief

The Reserve Bank of Australia (RBA) came out with a surprise hawkish rate hike this morning, moving the bank rate up to 0.35% (+25bps) and above the expectations of +15bps. The RBA judged now is the right time to start tightening monetary policy by withdrawing the emergency support and that they will be lifting interest rates again. The Australian economy has done well during the recent high inflationary period but has started to worry about the rising wages, which will compound the inflationary effects.

The AUDUSD bounced off the recent demand areas and as price action cleared the supply from October 2021, I am now expecting the AUDUSD to rise beyond the 200-period moving average on the daily time frame.

As we approach the FOMC rate hike decision, precious metals are on the decline as real yields rise. We could get a test of the daily 200-period EMA today as investors ditch safe havens in favor of the commodity and risk assets.

After this morning’s rate hike decision from the RBA, the Australian dollar is currently the strongest currency relative to its peers, whereas the Swiss franc, closely followed by the Japanese yen is the weakest. The New Zealand dollar is not far behind those currencies, but a good employment report tonight could see that reverse.

The EURNZD chart is showing strength in the euro versus the Kiwi, as price action is holding above the highs printed on the 4th of March. That day was a big down day, so there would have been stops places above and possibly trailing from the previous candle’s highs. We’ve now cleared a lot of those orders so it will be interesting to see if the price action can use the 1.6280 as a base to then build momentum to cross the 200-period EMA.

The US dollar index is pushing the limits of the trend, but we could get a pop through the 104.00 to possibly above the 105.00 before coming back down into value. Looking at the Bollinger Band Width, we generally get a reversal at these extremes. But with the FOMC about to give us their update, I am expecting some volatility and have expectations of buying the rumor and selling the news to occur.

The global benchmark index has turned positive today after yesterday's rebound. I am expecting the indices to carry on pushing higher but we should be aware of the daily low from 28th April 2022 as a possible resistance level.

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