- AUD/USD continues to hover near 0.7100, higher by a substantial margin on the day, but below post RBA rally highs.
- The RBA surprised markets with a higher-than-expected rally and aggressive stance, which buoyed the Australian dollar.
- But in an unfavorable macroeconomic context, many analysts warn that a sustained recovery in AUD/USD is not expected.
As has been the case since the beginning of European trade, the AUD/USD it continues to hover near the 0.7100 level, well below its higher-than-expected post-RBA rate hike highs at 0.7145, but up roughly 0.8% on the day. In short, the Australian dollar received a boost during the Asian session after the RBA raised the interest rate by 25bps to 0.35% versus an expected 15bps rate hike, signaling the possibility of even bigger moves in the future.
Analysts are now speculating that the bank could raise interest rates by 40bps in June, while money markets continue to price the RBA’s benchmark interest rate to 2.5% by the end of the year. The quicker-than-expected start of the RBA’s widely-anticipated tightening cycle sparked an aggressive reaction in Australian government bond markets, helping to lift the Australian dollar, though FX strategists warned it might be too early to bet. for a longer AUD/USD rebound.
Techs said the failure of the pair to test the March lows of 0.7160 was a bearish sign and suggested that the appetite to sell on rallies remains strong. More broadly, risk appetite in global equity markets remains strong, US yields continue to rise and the US dollar remains well supported with DXY still near multi-year highs. This reflects a market bracing for a quick Fed tightening, analysts said, which bodes badly for the AUD/USD outlook.
Remember that the Australian dollar also has to worry about the lockdowns in China, which appear to continue to tighten now in Beijing as well, and the economic slowdown there as a result. AUD/USD bears are likely to continue targeting a test of yearly lows below 0.7000 in the near future, regardless of the new, more aggressive RBA stance.
Technical levels
Source: Fx Street
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