AUD/USD movement: Here’s why the Australian dollar is surging

The AUD/USD price started the month well as investors reflected on the relatively hawkish interest rate decision by the Reserve Bank of Australia (RBA). The pair rose to a high of 0.7090, which was the highest level since January 27th.

RBA decision 

The RBA concluded its two-day meeting on Tuesday meeting and did what mostly analysts were expecting. The bank left interest rates unchanged at 0.10%, where they have been since the pandemic started. 

The most important mover in the decision was on its asset purchases program. In the statement, the bank said that it will end the QE program completely on February 10th, in a sign that it is gearong towards rate hikes. 

Before the meeting, the other possible scenario by the RBA was to lower the size of asset purchases or hint that it will end them at a later date. 

The bank attributed the tightening tone to the fact that the Omicron variant has affected but not derailed the economic recovery. It, therefore, expects that the economy will expand by about 4% this year and then slow down to 2% in 2023.

On inflation, the RBA expects that consumer prices will keep rising this year. Precisely, it sees inflation rising to 3.75% and then start easing to 2.75% in 2025.

Another reason why the AUD/USD rose is that the bank talked about interest rates. The bank said that its first hike will come when the actual inflation is within the 2% and 3% range. Therefore, there is a likelihood that this will happen later this year. The bank said:

“While inflation has picked up, it is too early to conclude that it is sustainably within the target band. There are uncertainties about how persistent the pick-up in inflation will be as supply-side problems are resolved.”

Earlier on, data by the Australian Bureau of Statistics showed that the country’s retail sales declined by 4.4% in December. 

AUD/USD forecast 

The four-hour chart shows that the AUD/USD pair has made a spectacular comeback in the past few days. The pair is trading at 0.7083, which is an important level since it was the lowest level on December 20th.

It has also moved slightly above the 25-day moving average while the Relative Strength Index (RSI) has tilted upwards. 

Therefore, I suspect that the pair will soon give back these gains as investors anticipate that the Fed will be more hawkish than the RBA. If this happens, the next key support to watch will be at 0.7000.