On Tuesday, the Australian dollar jumped above 0.7630, the highest level since June 2021, as traders bought the Aussie following the latest RBA monetary policy decision.
The Australian central bank left monetary policy unchanged, with the primary rate kept at 0.1%. However, the RBA acknowledged that inflation has picked up, and a further increase is expected.
The statement further read that wages growth has picked up but, at the aggregate level, is only around the relatively low rates prevailing before the pandemic. Given the tightness of the labor market, a further pick-up in aggregate wages growth and broader measures of labor costs is in prospect.
Additionally, the Board has wanted to see actual evidence that inflation is sustainably within the 2 to 3 percent target range before increasing interest rates.
The RBA reiterated that it would wait for more indications that wage growth has significantly picked before moving to tighten policy. That puts the potential date for the first hike at the June meeting, as the May meeting is scheduled around two weeks before first quarter wage data is released in Australia.
“While the notion of imminent RBA tightening can help form some short-term support around the 0.7600 level in AUD/USD, it appears that the market’s pricing on RBA tightening has gone too far (seven hikes by year-end), and we, therefore, expect some dovish disappointment along the way to curb AUD upside by year-end,” analysts at ING said after the RBA decision.
US macro update
So far today, the US calendar has offered the goods and services trade balance for February, which stayed at -89.2 billion USD. The goods trade balance worsened slightly to -107.5 billion USD.
Later in the session, the US services ISM survey for March is due, seen improving slightly to 58 from 56.5 previously. In addition, the employment subindex will likely improve as well.
Additionally, several FOMC speakers will hit the wires today – including Brainard, Kashkari, and Williams. They will probably confirm the hawkish stance of the Fed ahead of this month’s meeting.
Daily chart appears bullish
The AUD/USD pair has comfortably broken above November highs at 0.7560. Therefore, the medium-term outlook seems bullish as long as it trades above that resistance/now support.
The next target could be the 0.77 area, where the 2021 summer lows are. However, the current rally looks heavily overbought, likely leading to some profit-taking at the mentioned resistance level, with a possible correction afterward.