The Reserve Bank of Australia presented a "hawkish surprise" today by raising the interest rate by 25 basis points at once. Ahead of the May meeting, most analysts predicted a 15-point increase in the rate as a reaction to a sharp increase in inflation in the country. Some experts also warned that the RBA could take a wait-and-see position until June, given the coronavirus factor, the upcoming elections and weak wage growth.
However, the Australian central bank still implemented the most hawkish scenario, thereby supporting the aussie. The RBA not only decided on a 25-point increase, but also voiced rather harsh rhetoric, outlining further steps to tighten monetary policy. Reacting to the results of the May meeting, the AUD/USD pair jumped by 100 points, reaching the middle of the 71st figure. However, the upward momentum faded in this price area, – bears took advantage of the situation by opening short positions at a more favorable price. Apparently, AUD/USD bulls will not be able to reverse the downward trend, despite the hawkish attitude of the RBA.
And the RBA's attitude is really "combative". During the final press conference, the head of the RBA said that during the "coming months" further interest rate increases "will be necessary." At the same time, he noted a significant increase in inflation, the rate of which exceeded earlier forecasts of the RBA. Moreover, according to Lowe, wages also began to grow much faster, against the background of the overall economic recovery. Although it was the "salary issue" that was most often a deterrent for the head of the Australian central bank. But during his speech today, RBA Governor Philip Lowe focused his attention only on positive trends.
In particular, he pointed to a 4 percent unemployment rate, but did not mention a fairly modest increase in the number of people employed in March (17,000 instead of the projected 30). According to the head of the RBA, this year the Australian economy will actively grow: the main forecast is that the country's GDP growth will exceed the four percent mark. Summarizing his speech, Lowe, firstly, pointed to the stability of the economy, and secondly, pointed to the absence of the need to keep rates at a record low level. In his opinion, the normal rate level is around 2.5%.
Following the results of the May meeting, it also became known that the RBA will stop reinvesting assets to be repaid, which will allow the central bank's balance sheet to shrink in the coming quarters.
In other words, the RBA has joined those central banks of the world that have taken a course to tighten the parameters of monetary policy. Many experts now admit that the RBA may raise interest rates by 30-40 basis points following the results of the June meeting, while the Australian central bank may reach the final goal of 2.5% by the end of this year.
Nevertheless, despite such hawkish results of the May meeting, the aussie showed a rather modest reaction. Corrective growth choked, barely started.
Firstly, the divergence of the positions of the Federal Reserve and the RBA has not gone away: the US central bank intends to raise interest rates much more aggressively, starting from the May meeting. Secondly, the greenback is in high demand as a protective asset, given the ongoing geopolitical tensions. Thirdly, we cannot discount the difficult Covid situation in China, because of which its economy began to experience problems.
In dozens of cities of the country, full or partial lockdowns were in effect during April (including in cities such as Shenzhen and Shanghai). In the capital of the People's Republic of China, restrictions have been imposed in some quarters, and schools have also been closed. The results of the April quarantine restrictions were not long in coming: in particular, the purchasing managers' index remained below the key 50-point mark last month, continuing to decline (47 points in April after the 49-point result in March).
Manufacturing activity in China has been at its lowest level since 2020, that is, since the first wave of the coronavirus crisis.Thus, in my opinion, the AUD/USD pair is currently showing temporary corrective growth, while the downward trend has still not exhausted itself. From the current position, it is advisable to consider short positions with the first (and so far the main) target at 0.7000. This is a fairly powerful level, which is "sacred" for traders of this pair – it is difficult to break through both "top-down" and "bottom-up". Therefore, when reaching this price milestone, it is best to take a wait-and-see attitude.
From a technical point of view, the pair on the D1 timeframe is located between the middle and lower lines of the Bollinger Bands indicator, as well as under all the lines of the Ichimoku indicator, which shows a bearish Parade of Lines signal. All these signals of a technical nature also indicate the priority of the downward movement. The first, and so far the main target of the downward trend is located on the lower line of the Bollinger Bands indicator – at around 0.7000.
