AUD/USD. The Reserve Bank of Australia increased the interest rate by 25 points
February 7, 2023 3:22 pm
When compared to the US dollar today, the Australian dollar shows persistence in response to the RBA’s February meeting results. The AUD/USD pair declined from the local low (0.6861), returning once more to the 69th figure area. However, the northern momentum started to fade early during Tuesday’s European session. Bears are progressively taking the lead and profiting from the dollar’s broad strengthening. This shows that, despite the RBA’s hawkish stance, going long on the pair is still dangerous.
Conclusions from the RBA meeting
The interest rate was increased by 25 points, to 3.35%, by Reserve Bank members in response to the outcomes of the February meeting. This decision was anticipated, especially in light of the most recent Australian inflation data release. Identifying the potential for the future was the main attraction. Before today’s meeting, there was no agreement on the market as to the next steps the Australian regulator would take. Some experts assume that the RBA will announce another rate increase in March but doubt the subsequent steps in this direction. This is known as a conditionally “dovish” scenario (that is, it will hint at the end of the current cycle of monetary policy tightening). Other experts anticipated a more pessimistic scenario, in which the Central Bank would commit to following a pessimistic course (without voicing any time frame).
To support the Australian dollar, the Reserve Bank adopted a conditionally “hawkish” scenario.
The accompanying statement’s wording states that the rate and length of the tightening “directly depend on the incoming data and the Monetary Policy Council’s assessment of the prospects for inflation and the labor market.” According to this brief statement, the RBA appears to have “tied” its future actions to the dynamics of inflationary growth and the state of the labor market. Recall that the consumer price index outperformed expectations in both December and the fourth quarter, the most recent data on inflation increase in Australia being in the “green zone.” Therefore, there are currently no indications that inflation is slowing down.
Furthermore, the rhetoric of the head of the RBA was clearer even though the accompanying statement’s standard wording may be taken in a variety of ways. He claims that to “ensure the return of inflation to the target level,” the Central Bank will need to raise interest rates further in the upcoming months.
All of the data suggests that the Central Bank will keep the PEPP rate at a 25-point tightening and that it will also raise the rate in May in addition to March.
Given that the February RBA meeting remained a source of excitement until the very last moment, the conclusions of today’s meeting allowed AUD/USD purchasers to conduct a counteroffensive: the price rose by about 100 points, returning to the 69th figure range.
Trend correction or reversal?
The outcomes of the February meeting can be described as a milestone in general. By basically ruling out the possibility of a potential halt, the central bank has ensured the continuation of the hawkish track at least through the end of spring. One would think that such a fundamental background would help the northern tendency develop, but there is a catch. When the dollar started to spread throughout the market due to unexpectedly strong non-farms, the RBA stepped in to stabilize the Australian dollar. In these circumstances, we can only speak of an AUD/USD corrective pullback and not of a southern trend reversal.
Let me remind you that following the results of the last Fed meeting, Jerome Powell used pretty harsh rhetoric. He hinted at a future interest rate increase by saying that the Central Bank “still has a lot of work to do.” The regulator also kept the phrase “further tightening of monetary policy settings is justified” from the accompanying statement.
The key labor market growth statistics released last Friday only served to confirm the market’s pessimistic views. However, there is less concern now about a potential recession. For instance, US Treasury Secretary Janet Yellen expressed optimism yesterday that the United States will be able to prevent it. She recalled that the American economy added more than 500,000 jobs in the previous month and that the nation’s unemployment rate dropped to a 53-year low. The country’s inflation will “significantly reduce” in the near future, according to the president of the ministry of finance, and the American economy “will remain strong.”
Conclusions
Despite the hawkish outcomes of the RBA meeting, opening long positions for the AUD/USD pair in the context of a stronger dollar is exceedingly dangerous. For the fourth day in a row, the US dollar index has been moving upward, indicating that there is more demand for the US dollar. As a result, it is suggested to open short positions using the present increase in the AUD/USD price, with a medium-term target of 0.6850 (the lower line of the Bollinger Bands indicator on the daily chart).
The material has been provided by InstaForex Company – www.instaforex.com
When compared to the US dollar today, the Australian dollar shows persistence in response to the RBA’s February meeting results. The AUD/USD pair declined from the local low (0.6861), returning once more to the 69th figure area. However, the northern momentum started to fade early during Tuesday’s European session. Bears are progressively taking the lead and profiting from the dollar’s broad strengthening. This shows that, despite the RBA’s hawkish stance, going long on the pair is still dangerous.
Conclusions from the RBA meeting
The interest rate was increased by 25 points, to 3.35%, by Reserve Bank members in response to the outcomes of the February meeting. This decision was anticipated, especially in light of the most recent Australian inflation data release. Identifying the potential for the future was the main attraction. Before today’s meeting, there was no agreement on the market as to the next steps the Australian regulator would take. Some experts assume that the RBA will announce another rate increase in March but doubt the subsequent steps in this direction. This is known as a conditionally “dovish” scenario (that is, it will hint at the end of the current cycle of monetary policy tightening). Other experts anticipated a more pessimistic scenario, in which the Central Bank would commit to following a pessimistic course (without voicing any time frame).
To support the Australian dollar, the Reserve Bank adopted a conditionally “hawkish” scenario.
The accompanying statement’s wording states that the rate and length of the tightening “directly depend on the incoming data and the Monetary Policy Council’s assessment of the prospects for inflation and the labor market.” According to this brief statement, the RBA appears to have “tied” its future actions to the dynamics of inflationary growth and the state of the labor market. Recall that the consumer price index outperformed expectations in both December and the fourth quarter, the most recent data on inflation increase in Australia being in the “green zone.” Therefore, there are currently no indications that inflation is slowing down.
Furthermore, the rhetoric of the head of the RBA was clearer even though the accompanying statement’s standard wording may be taken in a variety of ways. He claims that to “ensure the return of inflation to the target level,” the Central Bank will need to raise interest rates further in the upcoming months.
All of the data suggests that the Central Bank will keep the PEPP rate at a 25-point tightening and that it will also raise the rate in May in addition to March.
Given that the February RBA meeting remained a source of excitement until the very last moment, the conclusions of today’s meeting allowed AUD/USD purchasers to conduct a counteroffensive: the price rose by about 100 points, returning to the 69th figure range.
Trend correction or reversal?
The outcomes of the February meeting can be described as a milestone in general. By basically ruling out the possibility of a potential halt, the central bank has ensured the continuation of the hawkish track at least through the end of spring. One would think that such a fundamental background would help the northern tendency develop, but there is a catch. When the dollar started to spread throughout the market due to unexpectedly strong non-farms, the RBA stepped in to stabilize the Australian dollar. In these circumstances, we can only speak of an AUD/USD corrective pullback and not of a southern trend reversal.
Let me remind you that following the results of the last Fed meeting, Jerome Powell used pretty harsh rhetoric. He hinted at a future interest rate increase by saying that the Central Bank “still has a lot of work to do.” The regulator also kept the phrase “further tightening of monetary policy settings is justified” from the accompanying statement.
The key labor market growth statistics released last Friday only served to confirm the market’s pessimistic views. However, there is less concern now about a potential recession. For instance, US Treasury Secretary Janet Yellen expressed optimism yesterday that the United States will be able to prevent it. She recalled that the American economy added more than 500,000 jobs in the previous month and that the nation’s unemployment rate dropped to a 53-year low. The country’s inflation will “significantly reduce” in the near future, according to the president of the ministry of finance, and the American economy “will remain strong.”
Conclusions
Despite the hawkish outcomes of the RBA meeting, opening long positions for the AUD/USD pair in the context of a stronger dollar is exceedingly dangerous. For the fourth day in a row, the US dollar index has been moving upward, indicating that there is more demand for the US dollar. As a result, it is suggested to open short positions using the present increase in the AUD/USD price, with a medium-term target of 0.6850 (the lower line of the Bollinger Bands indicator on the daily chart).
The material has been provided by InstaForex Company – www.instaforex.com
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