The Australian dollar staged a real rally today following the Reserve Bank of Australia's decision to raise the key interest rate by 0.25% (to 3.85% from 3.60% previously). Recall that in the previous two meetings, the RBA leaders did not make changes to the parameters of the current monetary policy, assuming a further decrease in inflationary pressure, after inflation, in their opinion, had already passed its peak, although it still remained high.
Indeed, as evidenced by the recent report from the Australian Bureau of Statistics, the consumer price index in the first quarter of 2023 fell to 1.4% (from 1.9% previously) and to 7.0% in annual terms (against 7.8% in the previous quarter). The core CPI from the RBA, calculated using the trimmed mean method, in the first quarter of 2023 fell to 6.6% (compared to 6.9% in the fourth quarter of 2022 and forecast growth to 7.2%).
Still, the RBA managed to surprise market participants today by unexpectedly raising the interest rate and also assuming that "some further monetary policy tightening may be required." According to the leaders of the Australian Central Bank, "inflation at 7% is still too high, and it will take some time before it returns to the target range," but "further tightening will depend on how the economy and inflation develop."
As noted above, the market reacted to the results of today's RBA meeting with a sharp strengthening of the Australian dollar and a surge in the AUD/USD pair "upward," which broke the round resistance level of 0.6700, reaching an intraday high of 0.6716. However, the price has not yet managed to overcome the strong resistance level of 0.6710, and at the beginning of today's European trading session, AUD/USD slightly decreased from today's high.
Whether the price will move higher will largely depend on the outcome of the Federal Reserve meeting, which begins today and concludes on Wednesday with the publication (at 18:00 GMT) of the interest rate decision. As for the RBA's further actions, we assume that the Australian currency will still weaken in the long run.
The RBA believes, according to today's statement, that "a significant source of uncertainty remains the outlook for household consumption." It is also expected that "inflation will be at 4% in 2023 and 3% in mid-2025," continuing to weaken slowly "for several years before returning to the upper end of the target range." In other words, RBA leaders will take a very serious approach to the appropriateness of further tightening of policy, periodically or even permanently, putting the tightening cycle on pause.
As for other important events this week, in addition to the publication of the monthly report from the Ministry of Labor on Friday, which traditionally captures the attention of all market participants, the central banks of the Eurozone and, as we have already noted, the United States will also hold their meetings devoted to monetary policy issues. Market participants trading instruments related to gold quotes should pay particular attention to them, as volatility in these instruments may be very high.
Gold quotes are highly sensitive to the decisions of the world's largest central banks, primarily the Federal Reserve, on interest rates. When monetary conditions tighten, gold quotes typically decline. On the contrary, if the Federal Reserve and the ECB signals a suspension of the policy tightening process and its reversal by the end of the year at the meetings on May 2–3 and May 4, we may soon see new record highs in the XAU/USD pair and gold quotes, possibly even above the absolute high of $2070.00 per ounce reached in March last year.
From a technical point of view, the XAU/USD pair is trapped in a range between the support level of 1973.00 and the resistance level of 2010.00. A breakout in either direction will obviously be the start of a new movement on the momentum gained this week. Although, as we have already noted, the "swing" and flat may continue since the outcomes of the Federal Reserve and ECB meetings and the U.S. Ministry of Labor report may give the XAU/USD pair different directional vectors. In general, the upward dynamics are maintained, and only when breaking the 1954.00 support level can one seriously consider short positions on gold and the XAU/USD pair.
As for the remaining important news and publications for today, we are monitoring important macro statistics from New Zealand (at 22:45) and Australia (at 23:00 GMT).