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Abstract: The AUDUSD rose to a three-week high on Wednesday. Earlier, the Reserve Bank of Australia unexpectedly raised interest rates by 25 basis points to 4.1%, the highest level in 11 years, and said that further interest rate hikes may be needed to push inflation to the target.

Fundamentals

The Reserve Bank of Australia (RBA) once again raised the policy interest rate by 25 basis points to 4.10% and said that it may be necessary to further tighten monetary policy to ensure that inflation returns to the target level within a reasonable time, but this will depend on the development of the economy and inflation. This doesn't sound like a short-term suspension of interest rate hikes, especially if the inflation rate remains high because the inflation rate rose to 6.8% in April last year.

The RBA's decision was regarded as a hawkish shift, after the RBA abandoned its statement that the medium-term inflation expectation remained well-anchored, indicating that people were increasingly worried that inflation was still too high.

The decision of the RBA increased the signal of further interest rate hikes, and the market now expects the bet of an interest rate hike in July to rise to 60%. The upcoming labor market and inflation data will determine whether the AUD can maintain its upward trend. As long as the RBA continues to adopt restrictive policies, the AUD should continue to be supported.

Given the RBA's concerns about inflation risks, and market pricing does not seem to fully reflect this, the AUD and government bond yields may continue to rise. Market pricing fully reflects that the RBA will raise interest rates again, and there may be more risk premium, especially considering that the Fed may raise interest rates again in the next few months, and the previous expectation is that the Fed's interest rate hike cycle has ended.

Technical Analysis

The decision of the RBA boosted the AUD, extending the latest rally from the low of 0.6458 on May 31 to the level of 0.6700. Nevertheless, there may be selling in this range, because the stochastics are overbought in the 1D timeframe and consolidate before continuing to push up.

However, the risk premium may continue to push the price higher. In particular, after the three bear stop loss orders at 0.6660, 0.6675, and 0.6697 are triggered, the price may continue to move up to complete the AB=CD pattern (but not by much). It is recommended to buy the dips and go short at the highs in the later stage.

Trading Recommendations

Trading direction: Long

Entry price: 0.6690

Target price: 0.6777

Stop loss: 0.6550

Deadline: 2022-06-21 23:55:00

Support: 0.6638, 0.6611, 0.6557, 0.6543

Resistance: 0.6691, 0.6733, 0.6746, 0.6771