Could the Reserve Bank of Australia hike rates further?

The Australian interest rate is currently at 3.85% and the most recent consumer price index (CPI) released at 6.8% which indicates slightly higher than expected inflation growth (expectation was 6.4% with previous data at 6.3%). This puts more focus on the upcoming interest rate decision from the Reserve Bank of Australia (RBA). While further rate hikes could apply added pressure onto the economy as households face increasing mortgage repayments, on the other hand, the series of previous rate hikes have not signaled that inflation growth is likely to slow down sustainably towards the RBA’s target level.

Market analysts are split between a hawkish hold (keeping rates at 3.85% while signaling a possible hike in the 3rd quarter, depending on further data) or continuing with another hike of 25bps to 4.1%.

With the AUDUSD currently trading along the 0.66 price level, a hawkish interest rate decision from the RBA could see the AUDUSD break above the resistance at 0.6650, formed by the 200 moving average. The expected price action could be similar to that seen following the RBA’s surprise decision to hike rates by 25bps at the May meeting.

In this scenario, the AUDUSD could trade toward the immediate key resistance level of 0.68 with further sustained upside likely to depend on the volatility of the DXY.