On Tuesday, May 6th, the Reserve Bank of Australia raised its key interest rate for the third consecutive time, aligning with market expectations. The RBA's nine-member policy committee voted 8-1 to increase the cash rate from 4.1% to 4.35%, fully reversing last year's monetary easing cycle. This aggressive tightening measure underscores the central bank's determination to curb persistently high inflation and reinforces its unique stance among global peers. Governor Michele Bullock told reporters that the rate hike provides the RBA with flexibility to determine its next steps, noting that policymakers are monitoring whether inflation expectations remain anchored. She stated, "One reason for raising rates is to give us time to see how things develop. We believe we now have enough room to be vigilant about both upside and downside risks to inflation." Following Bullock's remarks on Tuesday, traders scaled back their expectations for further rate increases. Markets now anticipate only one additional rate hike from the RBA in the third quarter, whereas before the press conference, the probability of two more hikes by year-end was nearly 60%.
Meanwhile, according to International Monetary Fund guidelines, Japan can only conduct two more three-day intervention operations before November if it wishes to maintain its free-floating exchange rate regime. A Japanese finance ministry official cited IMF rules on Monday, indicating that three consecutive days of intervention would be considered a single market operation. This follows reports that Japanese authorities intervened last Thursday, causing a sharp rise in the yen and subsequent intraday rebounds in the following trading sessions. The finance ministry official clarified that under IMF rules, a maximum of three currency interventions within six months is consistent with a free-floating regime. Exceeding this limit would likely lead the IMF to classify the exchange rate system as a managed float rather than a free float. Despite this, market participants widely expect the yen to resume its weakening trend regardless of whether official intervention occurs.
Key data to watch today include the UK's April SPGI Services PMI final reading, US April ADP employment change, and Canada's April Ivey Seasonally Adjusted PMI.
Gold/USD Gold edged higher yesterday with a modest daily gain, currently trading around $4645. Support came from short covering and technical buying near the $4500 level, alongside optimism regarding peace negotiations. However, strong US economic data during the period and diminished expectations for Federal Reserve rate cuts limited gold's upward momentum. Today, resistance is seen near $4700, with support around $4600.
AUD/USD The Australian dollar advanced slightly yesterday, currently trading near 0.7250. The pair found support from short covering and improved risk sentiment. The RBA's expected third consecutive rate hike also provided underlying support. Nevertheless, reduced expectations for further RBA tightening capped the currency's gains. Resistance is anticipated near 0.7350 today, with support around 0.7150.
USD/JPY The USD/JPY pair recorded modest gains yesterday, supported by short covering and market caution following intervention by Japanese authorities. During early Asian trading, the pair retreated sharply to around 156.30, which analysts attribute to potential renewed intervention by Japanese authorities. Resistance is eyed near 157.00 today, with support around 155.00.