Lowe Lifts Off Again
The RBA caught markets by surprise once again last night as it lifted its headline cash rate by a further .25% from 3.85% to 4.10%. The move marks the second such unexpected hike from the bank, with the majority of analysts polled ahead of the meeting expecting no change whatsoever. The move has seen AUD trading sharply higher across the board with traders now repricing their RBA rate-path projections for the remainder of the year accordingly.
Inflation Still Elevated
Reaffirming the message given last time around, RBA governor Lowe warned that while inflation had likely passed its peak, indicators were showing signs of prices persisting at elevated levels. With this in mind, the RBA warned that it was vital to bring down consumer prices as quickly as possible. Lowe explained that the risk of allowing interest rates to become entrenched at higher levels was that rates might need to be hiked even more aggressively later on along with a larger rise in unemployment.
Further Tightening Likely
Looking ahead, Lowe signalled that further tightening would likely be necessary, dependent on how inflation and the economy evolve. While Lowe advised that the bank is still trying to keep the economy on an even keel, he warned that the path to getting inflation back to target while achieving a soft landing was a narrow one.
The recent failure at the 1.6428 level has seen the market reversing sharply lower. Price is now testing below the 1.6173 level support and while below here the focus is on a test of 1.6075 next, in line with bearish momentum studies readings.