The Australian dollar has strengthened its position across the market on Tuesday, reacting to the results of the RBA's April meeting. The Reserve Bank of Australia has strengthened its hawkish attitude, although it left the interest rate unchanged. But in this case, words were more important than actions: on the eve of the April meeting, no one expected that the regulator would decide on any specific actions. But as for the tone of the RBA's rhetoric, the intrigue remained here until the last minute. The central bank may well have maintained a cautious attitude, given the geopolitical instability. But the regulator nevertheless implemented a "hawkish" scenario, increasing the likelihood of an interest rate hike by the end of this year.
In general, the AUD/USD pair has been within the upward trend for almost four weeks. Since mid-March, the Australian dollar has been growing steadily, even against the background of increased demand for a safe greenback, which serves as a protective tool. Buyers of AUD/USD were able to overcome the almost 500-point path and are now at the level of 10-month highs. Moreover, in my opinion, the aussie has not exhausted its growth potential, given the messages that the RBA has voiced. Tuesday's price surge suggests that in the medium term, the pair may test the area of the 77th figure for the first time since June last year.
The RBA's rhetoric was indeed quite optimistic and encouraging in the context of hawkish intentions. The regulator noted that the unemployment rate in the country has decreased and will continue to decline (below the 4 percent mark), and inflation, on the contrary, has grown and will continue to grow. The central bank even noted wage growth, however, at the same time said that "at the aggregate level, wage growth rates remain in the area of relatively low values that prevailed before the pandemic."
The RBA also added that the growth in labor costs was below the pace that should correspond to inflation, which in turn settled steadily near the target level. However, even here the regulator has found a place for optimistic assessments. The central bank's accompanying statement indicates that, given the high demand for labor in the labor market, the bank expects a further acceleration in the growth of total wages "and broader indicators of labor costs."
As for the prospects of tightening monetary policy, the Australian regulator has linked this issue to inflation. Before raising the interest rate, the RBA intends to obtain factual evidence that inflation is "sustainably within the target range." Unfortunately, Australia publishes quarterly rather than monthly inflation reports, despite the fact that the head of the RBA has repeatedly advocated monthly publications.
Data for the first quarter of 2022 will be released only at the end of this month, so today we can operate with data for the 4th quarter of last year. During this period, the overall consumer price index jumped to 1.3% in the country (for comparison: in the third quarter, Australian inflation rose to 0.8%). At the same time, indirect inflation indicators suggest that in the first quarter of this year, the CPI will also show significant growth, increasing the likelihood of an interest rate hike this year.
Despite the fact that the Reserve Bank of Australia tied the issue of tightening monetary policy to inflation, it showed clearly "hawkish" hints, excluding one important phrase from the text of the accompanying statement. In the final communique of the April meeting, the phrase about the RBA's readiness to remain patient in the context of an interest rate hike disappeared. The exclusion of this wording was rightly regarded by traders as a signal of the central bank's readiness to consider the possibility of raising the rate in the foreseeable future. Note that earlier RBA Governor Philip Lowe did not rule out such a possibility, thereby fueling interest in the Australian dollar.
Thus, the Australian regulator once again confirmed its hawkish attitude on Tuesday. If inflation pleases investors this month, the probability of a rate hike will increase significantly. However, judging by the dynamics of AUD/USD growth, the market is playing this scenario in advance. This speaks to aussie's upward prospects.
Technology paints a similar picture. The pair on the D1 timeframe is between the middle and upper lines of the Bollinger Bands indicator, as well as above all the lines of the Ichimoku indicator, which demonstrates the bullish "Line Parade" signal. In other words, the pair retains the potential for further growth - at least to the first resistance level of 0.7660 (the upper line of the Bollinger Bands indicator on D1). A break of this level will open the way to the area of the 77th figure.
