AUD Trading HigherThe Australian Dollar has seen better demand today following comments overnight from RBA governor Lowe. Following the RBA’s February meeting which saw the bank announcing an end to QE but citing ongoing concerns over the sustainability of the pickup in inflation, Lowe’s comments last night were deemed more hawkish than the market was anticipating.Lowe Upbeat On EconomyLowe noted that the economy is growing at a faster pace than expected, accompanied by higher inflation. Adding some colour to the updated forecasts offered this week, Lowe also noted that while real GDP forecasts for 2022 had been lowered to 4.5%, this was because growth in 2021 had been revised sharply higher. Additionally, the bank has raised its inflation forecast for the same period while the unemployment rate is expected to fall further to around 3.75%.Uncertainty Remains An IssueBottom line is, Lowe is optimistic on the economy. The data is trending higher and the projections are solid. However, the fly in the ointment for the RBA continues to be uncertainty. Lowe spoke about uncertainty during the RBA’s meeting and dug a little deeper during these comments. Firstly, the RBA is concerned around COVID linked uncertainty, the potential for more variants to pop up and for further lockdowns to be needed. Secondly, the RBA is concerned about uncertainty linked to the pickup in inflation.While inflation is moving firmly higher, there are concerns around how sustainable this rise is given that it is largely attributable to supply-side issues which will surely be resolved at some point, likely leading to a drop off in inflation. Furthermore, while inflation is rising, wage growth is still subdued. However, if the current dynamic of higher inflation and a tighter labour market continues, wage growth is set to pickup firmly. So, it’s at this point which we might see the RBA turn more firmly hawkish.2022 Rate Hike Now Plausible Finally, then, we heard Lowe break from the party line, noting that rate hikes in 2022 are “plausible” if the current economic trajectory continues and downside risks don’t materialise. Previously, the bank has firmly pushed back against the idea of hikes ahead of the 2024 target date. Recently this view shifted to hikes this year being “unlikely” and now the language has changed again. Light at the end of the tunnel for Aussie bulls?Technical ViewsASX200The collapse in ASX200 from YTD highs saw the market finding strong demand into a test of the 6876.50 level support. Price has since bounced sharply but is yet to break back above the 7155.96 level. This is a major level for the market and while below here, price remains vulnerable to a further push lower. Bulls will need to see price break back above this level convincingly to put the focus back on upside.
Source: Tickmill
