AUD in DemandThe Australian Dollar has been higher today on the back of the RBA’s March meeting, held overnight. While the bank held off from tightening its monetary policy, expectations remain broadly hawkish with several regional banks having recently lifted their growth forecasts for Australia. The RBA itself, lifted its inflation target, citing the war in Ukraine as a major new factor.RBA: Uncertainty Around UkraineCommenting on the current situation, the RBA said: “The war in Ukraine is a major new source of uncertainty. Inflation in parts of the world has increased sharply due to large increases in energy prices and disruptions to supply chains at a time of strong demand. The prices of many commodities have increased further due to the war in Ukraine. Bond yields have risen over the past month and expectations of future policy interest rates have increased.”Inflation in FocusWhile the bank held off lifting rates this time around, rate hikes are expected as the RBA forecasted that inflation will” spike higher than this” due to current global developments. Despite this upside pressure, however, RBA governor Lowe noted that the RBA will remain patient in monitoring and reacting to inflation. On this, Lowe said: “While inflation has picked up, it is too early to conclude that it is sustainably within the target range. There are uncertainties about how persistent the pick-up in inflation will be given recent developments in global energy markets and ongoing supply-side problems.”Upside Inflation RisksThe RBA is keen to emphasise its willingness to remain patient. However, current market price action suggests that traders are taking the view that the bank will be forced to lift rates in coming months. With energy prices surging further higher and with clear upside risks given the likelihood of the war in Ukraine dragging on, inflation is likely to force the RBA’s hand before long.Global Economy on WatchThe caveat to this is the extent to which the war impacts the global economy. If the post-pandemic recovery begins to falter as a result of the economic impact of the war, particularly if other countries become involved, this might give the RBA scope to pause for longer.Technical ViewsAUDUSDThe Aussie is trading back up towards the top end of the recent .70 – .7312 range. With the bearish trend line coming in at that level also this is a key line in the sand for the pair. A break higher there will put the focus on a run up to the .7409 level initially. Meanwhile, a failure there will put the focus on a further range rotation lower.
Source: Tickmill
