AUD/USD is rising in response to hawkish signals from the RBA

The Australian dollar reacted with a strengthening to the "hawkish" message that accompanied today's RBA decision to raise interest rates in Australia by 25 basis points.

The RBA raises interest rates

In line with market expectations Reserve Bank of Australia (RBA) increased interest rates by 25 basis points (bps) to 3,35 percent. This is the 9th interest rate hike in Australia. They are now the highest in 10 years.

The rate hike itself was already in the prices, but the hawkish tone of the RBA statement was not. The central bank has clearly stressed that further interest rate hikes in Australia are to be expected. This is necessary to bring inflation back to target. The bank expects inflation to decline this year for both local and global reasons. But not fast enough. According to the latest RBA forecasts, inflation in Australia will fall to 3 percent. in mid-2025, i.e. it will still be above the acceptable level. In addition, a very tight labor market in Australia remains a threat to the scenario assuming a decline in inflation.

Situation on the Australian dollar

AUD / USD exchange rate reacted with an increase to the results of the RBA meeting and the accompanying communiqué. This pair even increased to 0,6951, after falling heavily for the last 3 days, breaking yesterday at the bottom of the ascending channel drawn since mid-October 2023.

On the basis of technical analysis, today's increase in AUD/USD should be treated as a return to the uptrend line broken yesterday (the lower limit of the upward channel), so at the moment it is a rebound of 3-day declines, not a new impulse. A return above 0,6940 at closing prices (at the end of the day) would again increase the chances of the demand side succeeding. However, only a return above the 0,6995-0,70 resistance zone would open the way for AUD/USD to attack the highs from the beginning of the month.

AUD/USD daily chart. Source: Tickmill

Until the AUD/USD exchange rate returns above both levels described above, the risk of a return to declines will persist, which in the extreme scenario could bring the exchange rate even below 0,65 in February. The minimum range of decreases calculated by postponing the width of the upward channel from which the AUD/USD broke out yesterday is 0,6468.