AUD in Demand
The Australian Dollar has been higher today on the back of the RBA’s March meeting, held overnight. While the bank held off from tightening its monetary policy, expectations remain broadly hawkish with several regional banks having recently lifted their growth forecasts for Australia. The RBA itself, lifted its inflation target, citing the war in Ukraine as a major new factor.
RBA: Uncertainty Around Ukraine
Commenting on the current situation, the RBA said: "The war in Ukraine is a major new source of uncertainty. Inflation in parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of strong demand. The prices of many commodities have increased further due to the war in Ukraine. Bond yields have risen over the past month and expectations of future policy interest rates have increased."
Inflation in Focus
While the bank held off lifting rates this time around, rate hikes are expected as the RBA forecasted that inflation will” spike higher than this” due to current global developments. Despite this upside pressure, however, RBA governor Lowe noted that the RBA will remain patient in monitoring and reacting to inflation. On this, Lowe said: “While inflation has picked up, it is too early to conclude that it is sustainably within the target range. There are uncertainties about how persistent the pick-up in inflation will be given recent developments in global energy markets and ongoing supply-side problems."
Upside Inflation Risks
The RBA is keen to emphasise its willingness to remain patient. However, current market price action suggests that traders are taking the view that the bank will be forced to lift rates in coming months. With energy prices surging further higher and with clear upside risks given the likelihood of the war in Ukraine dragging on, inflation is likely to force the RBA’s hand before long.
Global Economy on Watch
The caveat to this is the extent to which the war impacts the global economy. If the post-pandemic recovery begins to falter as a result of the economic impact of the war, particularly if other countries become involved, this might give the RBA scope to pause for longer.
Technical Views
AUDUSD
The Aussie is trading back up towards the top end of the recent .70 - .7312 range. With the bearish trend line coming in at that level also this is a key line in the sand for the pair. A break higher there will put the focus on a run up to the .7409 level initially. Meanwhile, a failure there will put the focus on a further range rotation lower.
Disclaimer: The material provided is for information purposes only and should not be considered as investment advice. The views, information, or opinions expressed in the text belong solely to the author, and not to the author’s employer, organization, committee or other group or individual or company.
Past performance is not indicative of future results.
High Risk Warning: CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% and 75% of retail investor accounts lose money when trading CFDs with Tickmill UK Ltd and Tickmill Europe Ltd respectively. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
Futures and Options: Trading futures and options on margin carries a high degree of risk and may result in losses exceeding your initial investment. These products are not suitable for all investors. Ensure you fully understand the risks and take appropriate care to manage your risk.
With 10 years of experience as a private trader and professional market analyst under his belt, James has carved out an impressive industry reputation. Able to both dissect and explain the key fundamental developments in the market, he communicates their importance and relevance in a succinct and straight forward manner.