The danger of recession does not scare the Reserve Bank of Australia

09 June 2023 206
The danger of recession does not scare the Reserve Bank of Australia

The AUDUSD pair price continues to update monthly highs, trying to consolidate above the level of 0.67. The Australian dollar rose in early June, and the potential for further rise is still present. Buyers of AUDUSD might face serious difficulties if the price approaches the level of 0.68. Otherwise the trend will continue.

 

Most of the central banks of developed countries could pause the cycle of monetary policy tightening this month, but the Australian financial regulator decided to be tough and raised its key rate again by 0.25%, to 4.1%. Such a move is unlikely to prompt similar action by the Fed, but other central banks may reconsider their plans to end the interest rate hike cycle.

 

Commenting on his surprise action, Reserve Bank of Australia (RBA) Governor Philip Lowe stressed the officials' determination to fight inflation. According to him, the price growth target of 2–3% will not be reached until mid-2025. Until then, the RBA's priority will be to reduce inflation, even if that means harming the national economy and labor market.

 

Lowe drew attention to medium-term inflation expectations, which are held at elevated levels of 3–4%. There is a danger the Australian economy will get into a situation where expectations of high rates of price increases are constantly built into the cost of goods and services. In this case, expectations will come true, and to break this inflationary spiral, the RBA must show firmness. As a result, market participants forecast two more key rate hikes, to the level of 4.6%. This could further strengthen the Australian dollar.

 

Despite the growth of AUDUSD over the past week, the RSI is still far from overbought levels and the uptrend is solid. As long as the price remains above the level of 0.665, the main scenario for it is to reach the level of 0.678.

 


The following trading strategy can be suggested:

 

Buy AUDUSD in the range of 0.669–0.671. Take profit — 0.678. Stop loss — 0.665.

 

Traders can also use a Trailing stop instead of a fixed Stop loss at their discretion.

This content is for informational purposes only and is not intended to be investing advice.

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