Aussie slammed after RBA hike

The Australian dollar is sharply lower on Tuesday. In the European session, AUD/USD is trading at 0.6796, down 1.0% on the day.

RBA hikes by 0.50%, Aussie plunges

The RBA delivered a 0.50% rate hike for a second straight month, bringing the cash rate to 1.35%. The central bank has now hiked by 1.25% since May, marking the fastest series of moves since 1994. This aggressive stance didn’t do anything for the volatile Australian dollar, which has plunged over 1% today.

There had been some uncertainty as to whether the RBA would hike by 0.25% or 0.50%. However, when Governor Lowe warned that inflation could hit 7% by the end of the year, the markets priced in a 0.50% move. The Australian dollar’s sharp fall is surprising, as I would have expected the 0.50% hike to provide the currency with a short-lived jump. The Aussie’s woes appear to be part of a risk-off move in the currency markets, with the US dollar posting broad gains today.

The RBA’s 0.50% hike is a vote of confidence in the Australian economy by the RBA, as Lowe is betting that the economy is resilient enough to withstand a sharp increase in rates. Employment is at a low rate of 3.9%, job vacancies are at record highs and consumer demand remains robust. The housing sector has been hit by higher borrowing costs, which will likely dampen household spending in the coming months. Lowe has admitted that there is a “narrow path” between tightening enough to curb inflation or being too aggressive and causing a recession.

Attention will now shift to the Australian inflation report for Q1, which will be released in the last week of July. Inflation is expected to continue to accelerate, with a peak in inflation remaining elusive. The markets have priced in another 0.50% hike in August and expect the cash rate to hit 3% or even higher by the end of 2022.

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AUD/USD Technical

  • AUD/USD is testing support at 0.6849, followed by support at 0.6732
  • There is resistance at 0.6933 and 0.7050

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.

Kenny Fisher

Kenny Fisher

Market Analyst at OANDA
A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities. His work has been published in several major online financial publications including Investing.com, Seeking Alpha and FXStreet. Based in Israel, Kenny has been a MarketPulse contributor since 2012.
Kenny Fisher

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