The Reserve Bank of Australia (RBA) is scheduled to announce their rate decision soon!
What are traders expecting and how can you trade the event?
Here are points you need to know if you’re trading RBA decision:
What happened last month?
RBA hiked rates by 0.25% vs. projected 0.15% increase
Policymakers highlighted economic resilience and strong inflation
RBA maintained positive economic outlook
RBA officials decided to surprise the markets with a larger than expected 0.25% hike in their May meeting, taking the benchmark rate up from 0.10% to 0.35%. Most analysts had expected to see a 0.15% increase.
According to their official statement, the resilience of the Australian economy and the strong upside pressures on inflation were the main reasons for hiking more aggressively.
In particular, policymakers highlighted the strength of the labor market, pointing to record-high labor force participation. Increasing job vacancies and ads are also helping boost wages in a tight jobs market.
To conclude, the RBA even hinted at “a further lift in interest rates over the period ahead” as they aim to bring inflation back to target.
With that, it’s no surprise that the Aussie popped higher across the board during the actual statement. Heck, AUD pairs were already up to a strong start a few hours prior to the event, as bulls were likely eager to price in hawkish expectations!
What might happen this time?
Interest rate hike of 0.40% is expected
This would take the cash rate up to 0.75%
Strong inflation to remain a concern
As with most major central banks these days, strong inflation would likely be one of the top concerns of the RBA, given how fuel and commodity prices remain elevated.
With that, many are counting on yet another aggressive tightening move from the Australian central bank. Analysts predict a 0.40% interest rate hike, with some even pricing in the possibility of a 0.50% increase.
Keep in mind that the latest GDP report showed a stronger than expected 0.8% expansion for the Australian economy, following an upgrade in its Q4 2021 growth figure. However, jobs data has been weaker than expected in May, possibly casting doubts on the labor market pickup.
Planning on trading the event? Make sure to note the average volatility of AUD pairs before you set your entry and exit targets.
It also helps to know AUD’s performance and trends against its major counterparts to pick the best AUD pair to trade.
Of course, if you’re not feeling like trading a top-tier report, you can always stay on the sidelines and note AUD’s price action for your future trades.
