Aussie Falls Despite RBA Rate Hike
RBA Hikes Rates
AUDUSD is under pressure today despite the RBA hiking rates overnight. At the May rates meeting, the bank lifted its headline rate to 4.35% from 4.10% prior in an 8-1 vote. The voting split was more hawkish than we saw last time around in March but the guidance issued alongside the decision was a little less hawkish than many were expecting, casting uncertainty over the prosect of a follow-up hike near-term. With the hike, the bank noted that domestic monetary policy was now “well placed to respond to developments”, with traders taking this as a sign that no further adjustments are seen as necessary near-term.
Iran War Risks
Despite the bank striking a more confident tone on the back of this latest rate hike, the global backdrop remains highly uncertain and conditions could easily develop so as to warrant further increases in coming months. US/Iran peace prospects have been thrown into doubt in the last 48 hours amidst reports of Iranian attacks on US ships in the Strait of Hormuz as well as missile attacks on UAE sites. With Trump warning of US retaliation, tensions are close o simmering over once again. As such, energy prices should remain anchored higher for now, keeping inflationary pressures stoked. For the RBA, the longer the war drags on the greater the inflationary impact and the greater the likely need for a further hike in coming meetings.
Technical Views
AUDUSD
For now, AUDUSD is struggling around the .7153 level with bearish divergence in momentum studies signalling the risk of a correctio lower. If we do break back below the level, .6942 will be the main support to watch, with the bull channel lows beneath. Above, .7285 is the next objective for bulls, along with a test of the channel highs.
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