USD/CAD Testing the 200 Daily SMA Again After Hawkish RBA

Posted Wednesday, June 7, 2023 by
Skerdian Meta • 2 min read

The Reserve Bank of Australia (RBA) took the spotlight in the late stages of Asia Pacific trading as it unexpectedly raised the cash rate by another 25 basis points (bps). This comes as a surprise to the market, as it marks two consecutive meetings in which the Australian central bank has defied expectations by increasing the rate. The cash rate now stands at 4.10%.

RBA Governor Lowe took a hawkish stance and made it clear that they are committed to taking necessary actions to bring inflation back within the target range. It seems surprising that the markets continue to anticipate a pause in rate hikes despite Lowe consistently emphasizing that inflation remains significantly high.

Lowe reiterated this stance in the rate statement, acknowledging that inflation in Australia has already reached its peak but is still at an elevated level of 7%, which is above the target range. He also noted that it will take some time before inflation returns to the desired range. While the rate hike may cause discomfort for households and businesses, the RBA believes it is a necessary step to combat the primary threat, which is inflation.

The forward guidance passage, which provides an indication of future monetary policy, remains unchanged from May. This suggests that the RBA may be preparing for further rate hikes in the future. To gauge market expectations, let’s examine the changes in the Overnight Index Swap (OIS) curve before and after the RBA decision.

The Australian dollar (AUD) experienced a significant increase in value following the RBA’s rate hike decision. The AUD/USD currency pair rose from 0.6615 to a peak of 0.6685 before retracing slightly. Currently, it is trading around the 0.6650-60 range for the day.

AUD/USD has made more than 200 pips of gains in the last several days, but the main trend remains bearish as the highs keep getting lower. Now this pair is headed to the 200 SMA (purple) which has been acting as resistanceAUD/USD before and yesterday the climb stopped right at this moving average. Today we will see if buyers will manage to push the price above it, which will be a buy signal.

AUD/USD Live Chart

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