The AUD/USD took a dive after the Reserve Bank of Australia (RBA) raised the benchmark cash rate by 25 bps (basis points).
The Reserve Bank is trying to control inflation, which is currently at a three-decade high. The move leaves the door open for further rate hikes, raising concerns that the reserve bank could overtighten.
Besides raising the cash rate by a quarter percentage point to 3.60%, the RBA added that a further tightening of the monetary policy will be required.
RBA was expected to hike the rates
RBA’s move was widely expected seeing that inflation rose to a three-decade high in the last quarter, which is well above the central bank’s target range of 2%-3%.
Last month, the reserve bank abandoned its previous plan to pause at 3.35% and signalled more rate hikes would be required.
Interestingly, the RBA is not an exception in rate hikes amid rising inflation and the worsening world economy. Central banks, including the European Central Bank and the US Fed, have also said more work needs to be done to tackle inflation.
As a matter of fact, the focus now shifts to the US Fed Chair Powell’s testimony to lawmakers later today and tomorrow for clues on the Fed’s rate path. the testimony is widely expected to determine the strength of the US dollar at least in the coming days.
European Central Bank (ECB) meeting
There are also the upcoming four European Central Bank (ECB) meetings.
In some overnight comments, Robert Holzmann, a policy maker for the ECB and Governor of Austria’s central bank, the Oesterreichische Nationalbank (OeNB), said he:
“Could see a 50 basis point lift to rates at the next four European Central Bank (ECB) meetings.”
Looking forward, it seems that commentary from central bank officials could be the driver for AUD/USD and EUR/USD alongside other currency markets and bond markets in general.
The ECB will convene on Thursday, March 16, 2023, ahead of the Fed which will start its meetings the following week on March 22,2023.
It is evident the next two weeks will see a lot of activity for the USD currency pairs including the AUD/USD.
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