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AUD strengthens as Bullock admits rate hikes help AUD recover lost ground

2024-08-09

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During the U.S. trading session, the Australian dollar continued to strengthen, with AUD/USD trading at 0.6584, an increase of 1.03%. GBP/AUD was trading at 1.9351/56, down 1.06%.

On Tuesday, the Reserve Bank of Australia released its latest quarterly forecasts, raising its forecasts for GDP, unemployment and core inflation. This is despite recent signs from the Reserve Bank of Australia (RBA) that GDP may slow in the second quarter. Rising interest rates have had a negative impact on the Australian economy, resulting in a significant decline in quarter-on-quarter growth since the start of 2023. Compared with the fourth quarter of 2023, the economy grew by 0.1% in the first quarter of 2024, narrowly avoiding negative growth.

Bullock mentioned that the Reserve Bank of Australia is considering raising interest rates on Tuesday, which reduces the chances of a rate cut and the Australian dollar strengthened. While the RBA assesses inflation and economic risks as "broadly balanced", the overall focus remains on reducing inflation to its target of 2%-3% over the medium term. According to the Reserve Bank of Australia's forecast, inflation (CPI) is expected to reach 3% in December before accelerating to 3.7% in December 2025.

The Reserve Bank of Australia is likely to continue discussing the possibility of raising interest rates amid continued lower prices, although markets still expect a 25 basis point cut by the end of the year.

AUD/USD correction encounters resistance

The Australian dollar has rebounded sharply against the U.S. dollar since Monday's global volatility, with Bullock acknowledging that higher interest rates have helped the currency regain ground. The extent to which the pair is able to recover appears to be limited by the recent resistance at 0.6580, which has blocked attempts to trade to the upside.

Another inhibitor appears at the 200-day simple moving average (SMA), which appears above 0.6580. The Australian dollar is likely to consolidate from now on, and its next move may depend on whether U.S. CPI can maintain its downward trajectory next week. Support appears at 0.6460.

GBP/AUD has recovered sharply from Monday's highs. Massive moves saw the pair fall back above 2.000 before the close. The pound appears vulnerable after the Bank of England cut interest rates last month, surprising some market players and causing markets to return to bearish territory.

The GBP/AUD decline is now testing the June swing high of 1.9350, with the 200 moving average showing the next support at 1.9185. Resistance appears at 1.9570 – the March 2024 high.

An interesting observation between the RBA and the market is that the RBA does not expect any rate cuts this year, while the bond market panicked on Monday and priced in as many as two cuts (50 basis points), which has since been reduced to 19 basis points.

Event risk fades over the next few days and into next week. A major market factor is the US CPI data for July, and current trends indicate that the disinflation process will continue.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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AUD strengthens as Bullock admits rate hikes help AUD recover lost ground

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