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AUD/USD and NZD/USD Fundamental Daily Forecast – RBA Jolts Economy with Biggest Rate Hike in 22 Years

By:
James Hyerczyk
Published: Jun 7, 2022, 07:16 UTC

Based on the movement in the Australian bond market, we’re expecting the RBA to remain aggressive with 50 basis point rate hikes in July and August.

AUD/USD, NZD/USD

In this article:

The Australian Dollar is trading nearly flat early Tuesday in a volatile session after the Reserve Bank (RBA) surprised traders with a more-than-expected 50 basis point rate hike while flagging more to come.

At 06:47 GMT, the AUD/USD is trading .7195, up 0.0001 or +0.02%. This is down from an intraday high or .7246. On Monday, the Invesco CurrencyShares Australian Dollar Trust ETF (FXA) settled at $71.25, down $0.15 or -0.21%.

RBA Rate Hike Exceeds Expectations

The Reserve Bank of Australia (RBA) raised its cash rate to 0.85% after its June policy meeting, surprising investors who has wagered on a move of either 25 or 40 basis points. The move by the central bank was its biggest interest rate hike in 22 years and signaled more tightening to come as it battles to restrain soaring inflation.

RBA Governor Philip Lowe’s Statement

“Given the current inflation pressures in the economy, and the still very low level of interest rates, the Board decided to move by 50 basis points today,” said RBA Governor Philip Lowe in a statement.

“The Board expects to take further steps in the process of normalizing monetary conditions over the months ahead.”

Lowe also added, “Higher prices for electricity and gas and recent increases in petrol prices mean that, in the near term, inflation is likely to be higher than was expected a month ago,” said Lowe.

Inflation Expected to Worsen…More Rate Hikes to Follow

In just his third week in office, Treasurer Jim Chalmers warned Australians inflation would get worse before it got better and to brace for a “difficult and expensive” winter,” Reuters reported.

With inflation looking set to stay high for longer, investors are wagering the RBA will have to raise rates to near 3% by the end of the year making it easily one of the most aggressive tightening campaigns on record. Lowe in the past has said “neutral” for rates could be around 2.5% so a move to 3% would signal the inflation problem is serious.

Daily Forecast

Using the price action in the financial futures markets as our indicator, we’re expecting the RBA to remain aggressive with 50 basis point rate hikes in July and August. July futures are implying a rate of 1.13% while the December contract implied rates would reach 3.08% by Christmas.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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