AUD could be set to outperform as RBA hikes again

RBA hikes and AUD outperforms

• RBA hikes again: A 25bps was as expected, but the RBA seems set to hike more. 
• AUD leads: The AUD is outperforming major forex
• Still watching for Fed chair Powell: There is still the threat of profit-taking on indices but US futures are stable this morning ahead of Powell’speech.

Determined RBA hikes again, with more to come

The Reserve Bank of Australia has hiked interest rates by +25 basis points. This takes the cash rate target to 3.35% (from 3.10% previously).

The hike was as expected by the consensus. However, the RBA accompanied the hike with a hawkish steer towards further rate hikes to come.

The RBA statement said:

“The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary.”

This has surprised markets, pushing expectations of the peak rate up to 3.90% (from 3.75% yesterday).

The result is that the AUD is outperforming once more today.

The split among major central banks

There is a clear split forming amongst major central banks now. The RBA seems to be determined to continue hiking, helping the AUD to perform strongly.

• The European Central Bank is in a similar boat to the RBA, remaining determined to hike. This is helping the EUR performance.
• However, the Bank of England issued a dovish hike last week, hitting the outlook for GBP.
• Furthermore, the Reserve Bank of New Zealand and the Bank of Canada also seem to be at or close to pausing. This is weighing NZD and CAD.

The big question mark is still around the Federal Reserve. Markets did not seem to believe them last week when Fed Chair Powell talked about more hikes to come. However, following the huge upside surprise in Nonfarm Payrolls, there has been a shift, with a rebound for the USD.

The performance of major currencies shows some significant swings

Notably, despite the sharp USD recovery since Friday, we still see the AUD and EUR outperforming. Both have spent much of the past month as the main outperformers.

At the bottom, we have the GBP and NZD. This split in performance could be set to continue.

Powell's speech later could drive the next move

On the economic calendar, we are still looking out for the speech of Fed chair Powell at the Economic Club of Washington, later today (at 17:40 GMT). 

Powell’s comments today could help to bake in expectations of a Fed hike in March and maybe also May. 

If so, then there could be more legs in the near-term USD rebound.

AUD/USD is still a buy into weakness

AUD/USD

AUD is picking up this morning since the RBA decision. AUD/USD has been trending higher in recovery since October. 

• The pair has retreated from an 8-month high of 0.7157.
• This has brought the pair to the bottom of the uptrend channel once more. It could now be a chance to buy.
• The old highs of the November/December breakouts between 0.6800/0.6890 are supportive.
• If this support can hold then the unwinding move on the RSI looks to be an opportunity. 
• A move below 0.6800 would suggest that upside momentum in the channel was being lost.

GBP/AUD

However, perhaps a better way to play the AUD is on the GBPAUD cross. The outlook has been deteriorating since December (AUD outperforming GBP).

• A top pattern was completed on a move below 1.7460 and has since been confirmed following the breach of support at 1.7335. This is now an area of overhead supply.
• The top pattern implies a move towards 1.6720 in the coming weeks.
• RSI momentum is negatively configured and rallies are seen as a chance to sell. 
• Initial support is 1.7222. 
• A move above 1.7627 would begin to negate.

Support and resistance levels for major markets

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