The Australian dollar has begun the week relatively strongly after gaining some momentum from RBA's most recent meeting. The board pushed across quite a hawkish sentiment sparking the rise in the AUD. They found that the current slowing growth across the market and global sphere created that was “becoming skewed to the downside.” The board expressed their concern about the economic activity in China, particularly with the threat of Covid 19.
With lockdowns and a strict covid policy, the threat remains a key factor in the speed of growth on the mainland. Whilst overall business activity improved through May and likely June as well, recent lockdowns have the potential to pull back these gains. The low unemployment signalled Australia’s robustness and strength with record high participation rates in the economy.
Violent weather events like the floods in NSW and the Russian and Ukraine crisis also further added strain on the supply driving up prices and increasing the price of goods. Non-labour inputs also rose in price contributing further to inflation. The members did note the prices for base metals had begun to ease as recession fears had grown.
In addition, declining house prices and clearance rates as a sign that the speed of inflation is potentially slowing, however, they still expect inflation to continue rising for the remainder of 2022. Ultimately the members of the board agreed to increase the cash rate by 50 basis points instead of the alternative of 25 points. With particular emphasis on the strong labour market, the need to bring inflation under control trumped the need for stronger growth.
In response to the release of the minutes, the AUDUSD saw a little rise higher. After sitting near its 52-week lows at $0.6681 in recent weeks, the minutes provided a much-needed push. The price of the AUDUSD currently sits at $0.6845 which is its prior support level and has now become a level of resistance.
If the AUDUSD can push through this level the next resistance point is at $0.6967. As the market is still dealing with unprecedented global inflationary figures, it remains risky to go against the USD, however with effective risk management this risk can be mitigated.
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