The Australian dollar started the current week in a confident manner, but by its end it was a little exhausted. The aussie pendulum, which swung upward, is now headed in the opposite direction, alarming the markets. On Tuesday, June 7, the Australian dollar fell slightly against the US dollar, reaching 0.7190. Against this background, the aussie sought to develop a corrective rebound, acting with varying success. The aussie's dynamics was formed under the influence of the decision of the Reserve Bank of Australia (RBA) on the interest rate. Recall that following the central bank's meeting, it decided to raise the key rate by 50 basis points (bp), increasing it from the current 0.35% to 0.85%. This measure came as a surprise to the market, as analysts predicted a less aggressive tightening of the monetary policy. Currency strategists interpreted this as a hawkish reversal in RBA policy. In such a situation, the market expects a further increase in the interest rate by the end of 2022. According to Gareth Aird, head of economics at Commonwealth Bank of Australia, the decision to raise by 50 bp indicates that "the central bank has set a course to accelerate the tightening cycle of the monetary policy." According to analysts, the RBA's actions were a confirmation of its readiness to fight galloping inflation, which remains at a high of 5.1%. Note that this indicator is three times higher than the RBA's target of 2-3%. The central bank's hawkish statements have become a powerful driver of the growth of the Australian dollar. Massive purchases of the aussie were recorded in the markets, which contributed to its rise against most of the Big Ten (G10) currencies. The initial reaction of investors and traders led to the rise of the AUD/USD pair to a record high of 0.7244. In the future, the pair showed a decline, sharply rolling back to the level of 0.7200 and below. The next day, the aussie's negative trend remained in force. On Wednesday, June 8, the AUD/USD pair was trading in the low range of 0.7199-0.7200, making timid but unsuccessful attempts to climb higher
According to market participants, further depreciation of the Australian dollar is unlikely. This is hindered by the central bank's decisive actions, providing for a tightening of monetary policy. According to RBA Governor Philip Lowe, in the coming months, the central bank aims to normalize monetary policy. At the same time, "the size and timing of a further rise in interest rates will depend on current data, as well as on the level of inflation and the state of the labor market," Lowe said. According to the head of the RBA, the main indicator for the central bank is "strong growth in household consumption in 2022, which is important when assessing the parameters of monetary policy." However, the implementation of the aforementioned scenario may lead to a decrease in demand from households. This development contributes to the slowdown of the Australian economy in the coming months, experts warn. In such a situation, analysts recommend maintaining long positions on the AUD/USD pair with a target range of 0.7300-0.7350. Against this background, the markets expect a further increase in the interest rate at the central bank's subsequent meetings. If the RBA continues to follow the chosen course, the key rate in Australia will exceed 2% by the end of 2022. According to experts, this will provide long-term support to the Australian dollar, which has certain chances of growth in the long term.
