RBA Preview and what next for the AUDUSD

Next Tuesday, the RBA meets again and is widely expected to raise the cash rate. Once again, the main question will be by how much.

RBA communique in mid-July brought a new hawkish element to the RBA's monetary policy table, noting that "the current level of the cash rate is well below" the estimated neutral rate, thought to be "at least" 2.5%.

The comments jolted the interest rate market towards pricing a more aggressive 75bp rate hike for this week's RBA Board meeting.

However, the release of a better than feared Q2 CPI print has since seen the interest rate market erase all chances of a 75bp rate hike. And the debate has returned to the merits of a 50bp rate hike vs a 25bp rate hike on Tuesday.

Due to a tight labour market, an expectation that inflation will rise above 7% in the coming quarters and a desire from the RBA to see the cash rate move back to a neutral setting, a 50bp rate hike is likely next week, taking the cash rate to 1.85%.

A possible fourth consecutive 50bp rate hike in September followed by a 25bp rate hike before year-end would see the cash rate rise to 2.60%, into restrictive territory.

Due to the impact of falling house prices on consumer confidence and household spending, it's unlikely the RBA's cash rate will get to the 3.35% terminal rate the interest rate market currently has priced by April 2023.

Over the past fortnight, the AUDUSD has rallied over 5% from its .6681 low. This week's break and close above the downtrend resistance from the April 2022 .7661 high suggests the rally can continue in the short term.

However, with the global economy seemingly moving closer to a recession, an energy crisis in Europe and China's property market woes, sellers are expected to emerge near the 200-day moving average at .7175 before a dip below .6900c.

Source Tradingview. The figures stated are as of July 29th ,2022. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the company you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.