The AUDUSD currency pair was trading down over 120 pips despite the Reserve Bank of Australia’s expected 25 basis points rate hike. The currency pair was trading at its lowest since December as the Aussie weakened against the US dollar.
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.
The RBA rate hike was widely expected, but investors are worried that in efforts to combat record-high inflation, the central bank may overtighten its monetary policy, causing the Australian economy to shrink and even plunge into a massive recession. These concerns triggered the Australian dollar’s demise.
Top Broker Recommendation
- BlackBull 26,000+ Shares, Options, ETFs, Bonds, and other underlying assets – Read our Review
- Admiral Markets More than 4500 stocks & over 200 ETFs available to invest in – Read our Review
- Hargreaves Lansdown The company's website is easily understandable and accessible to a wide range of customers – Read our Review
- eToro Wide range of instruments available to trade – Read our Review
- IG Top-tier regulation – Read our Review
YOUR CAPITAL IS AT RISK. 76% OF RETAIL CFD ACCOUNTS LOSE MONEY
Today’s rate hike raised the RBA’s benchmark lending rate to 3.60% as the central bank promised more rate hikes. The rate hike comes after the RBA promised to stop hiking rates at 3.35% but changed its approach after inflation rose to a three-decade high of 7.4% in January.
The Australian economy has a silver lining in the Chinese economy’s reopening, the country’s largest export market. The recovery of China’s economy is good for Australia because it can export more of its products and services to China.
As I wrote this article, the AUDUSD currency pair kept falling as investors looked forward to Jerome Powell’s testimony before congress. Most investors expect the Fed chairman to reiterate the hawkish stance about the US economy and the need to keep hiking rates to prevent speculative market activity.
The US dollar was performing better than most of its peers, given that the Fed has hiked rates significantly and is ahead of its G7 peers in the rate-hiking journey. Many expect the Fed to tone down its rate hikes later this year, but the Fed has remained steadfastly hawkish this year, which could translate to more rate hikes than expected.
Investors will closely watch Powell's semi-annual testimony to determine if the Fed is nearly ending its rate hiking cycle. However, I believe that, at best, Powell will remain ambiguous as to when the Fed will stop hiking rates.
Still, like most investors, I believe that the Fed will have no choice but to end its rate hikes sometime this year and may even start reversing some of its tightening policies if the American economy shows signs of a recession.
*This is not investment advice.
The AUDUSD price chart.
The AUDUSD currency pair was trading down 120.1 pips (1.78%) as the Aussie fell against the US dollar.
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.