Key takeaways from todays RBA communique and what it means for the AUDUSD

Following last week's mega moves by central banks, the calendar this week allows central bankers to finetune some of those shifts, starting with a plethora of communique from the RBA this morning.

Trader 3

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

AUDUSD daily chart 21 june

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 

Disclaimer: The information on this web site is not targeted at the general public of any particular country. It is not intended for distribution to residents in any country where such distribution or use would contravene any local law or regulatory requirement. The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase or sale of any currency or CFD contract. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. Any references to historical price movements or levels is informational based on our analysis and we do not represent or warranty that any such movements or levels are likely to reoccur in the future. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

Futures, Options on Futures, Foreign Exchange and other leveraged products involves significant risk of loss and is not suitable for all investors. Losses can exceed your deposits. Increasing leverage increases risk. Spot Gold and Silver contracts are not subject to regulation under the U.S. Commodity Exchange Act. Contracts for Difference (CFDs) are not available for US residents. Before deciding to trade forex and commodity futures, you should carefully consider your financial objectives, level of experience and risk appetite. Any opinions, news, research, analyses, prices or other information contained herein is intended as general information about the subject matter covered and is provided with the understanding that we do not provide any investment, legal, or tax advice. You should consult with appropriate counsel or other advisors on all investment, legal, or tax matters. References to Forex.com or GAIN Capital refer to GAIN Capital Holdings Inc. and its subsidiaries. Please read Characteristics and Risks of Standardized Options.

Open an Account