AUDUSD is trading lower today after the Australian central bank in a surprising move raised the benchmark interest rates by 25 basis points, below the expectations of a 50 basis points hike. That was the sixth straight interest rate hike, now the interest rate stands at a nine-year high of 2.60% from 2.35%. The Reserve Bank of Australia’s surprising move might have bearish implications for the Australian dollar, as the interest rate gap between AUD and major currencies might widen as most of the central banks will continue with aggressive hikes.
Governor Philip Lowe said that will continue with interest rate hikes in order to bring inflation back to the 2%-3% target and keep the economy in solid condition. The Aussie economy is in better shape than most of the developed countries as the GDP continues to expand at 3.6% while the unemployment rate hovers at historic low levels at 3.5%. The central bank expects inflation to reach 7% in 2022 (a 20-year high), almost 4% in 2023 and 3% in 2024.
RBA increased by 25 basis points in May 2022 and 50 basis points rate increases in June, July, August and September 2022. The path to future interest hikes will be determined by the Australian economy’s fundamental data, the inflation rate and the outlook of the global economy.
Economists expect the rates to peak around 3.10% to 3.40% in the first quarter of 2023. Before the pandemic, the benchmark rate was at 0.75%.
After the RBA announcement today, Aussie stocks took a strong boost from the lower than forecasts hike in the interest rates and the strong rebound in Wall Street. The ASX 200 finished 3.8% higher at 6,699 which is the biggest one-day gain since June 2020. The All Ordinaries index ended 3.7% higher at 6,905.
AUDUSD Technical Analysis
AUDUSD as of writing is trading 0.44% lower at 0.6485, having hit the daily low at 0.6449 after the RBA interest rate decision. The Australian dollar (AUD) has lost almost 10% of its market value against the U.S dollar in 2022. The pair is hovering close to the lowest level since May 2020. The technical picture has improved slightly after the pair hit the 2-year lows at 0.6363 on September 28 as the RSI indicator slope turned upwards and exited the oversold area in the last few days.
Today’s high at 0.6547 provides minor resistance and a move above might challenge 0.6655 the high from September 23. The 50-day moving average is the next hurdle for the pair at 0.6815.
On the contrary, the first support provides the daily low at 0.6450. The base formed in the previous two trading sessions would offer strong support around 0.6390. The critical level to watch on the downside is the yearly low at 0.6363 which if breached would open the way for the 2020 lows.
Nikolas has been involved in the finance industry for over fifteen years spanning across Europe and USA with a depth of knowledge and experience within many aspects of the financial markets. Nikolas gained several years experience with some of the Europe’s leading Brokers, as equity analyst, and trader managing accounts for both Private and Corporate Investors. He enjoys both the fundamental and technical aspects of trading focusing on stock markets and all FX majors. Currently, Nikolas provides analysis and comments to online financial publications. Educational background in Economics (BSc), and Finance (MSc).