Following the results of the recent RBA meeting, Australia's key interest rate is now at 0.85%, up 0.50% from the previous level of 0.35%. The main reason is the rather difficult situation in the country, driven by high inflation, disruption of supply chains and increased geopolitical tensions in the world.

But why did the central bank raise the rate by 0.50%, and not significantly higher? The answer is that the RBA does not want to injure its economy with high interest rates because that, partnered with high inflation, can lead to stagflation.

If so, why did the Australian dollar react so negatively? Setting aside the fact that the rate hike is just slightly higher than the forecasted value of 0.60%, risk appetite is still low, so demand for assets like AUD are still short. If market sentiment improves, then the Aussie will rise again.

Going back to the RBA, there is a chance that it will increase rates again, along with other world central banks, in an attempt to curb inflation.

Forecasts for today:

AUD/USD

The pair is trading above 0.7150, thanks to high volatility and the results of the RBA meeting. If negative sentiment persists and the pair breaks the above-mentioned level, the quote will dip towards 0.7035.

GBP/USD

The pair made an attempt to break out of 1.2470-1.2580. If the data on business activity in the UK services sector is below forecast, the quote will continue falling to 1.2330.