Decision from the Reserve Bank of Australia, that was announced earlier today, turned out to be a big hawkish surprise. While the median estimate was for a 25 basis point rate hike, a number of economists expected a move of 40 basis points that would put the main rate at a pre-pandemic level (0.75%). However, the RBA surprised both groups with a 50 basis point rate hike! The Bank noted that it will do what is necessary to rein in inflation, signaling that further hikes may be on the way. RBA also said that the economy is in overall good shape with a tight labor market. However, this tight labor market combined with inflation drives wage growth and the Bank wants to prevent wage-price spiral from materializing.
A bigger-than-expected rate hike provided a lift for the Australian dollar. However, those gains were quickly erased and now AUD is neither winner, nor laggard among G10 peers. Taking a look at EURAUD chart at H4 interval, we can see that the pair has been trading in a downward channel recently. The pair attempted to take out 1.4800 support, marked with the lower limit of the market geometry, following RBA decision but downward momentum waned quickly. The question is what's next. If the pair manages to break above the 38.2% retracement that acted as a ceiling recently, it would mean that uptrend was defended and a larger upward move may be on the cards. EURAUD traders should keep in mind that the ECB is also expected to announce a rate decision this week (Thursday, 12:45 pm BST). While hawkish surprise in terms of rate is rather unlikely, ECB will release new forecasts that may set the stage for a rate hike in July.
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Source: xStation5
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