The Reserve Bank of Australia’s (RBA’s) 50 bp hike and hawkish statement delivered a jolt of energy to the aussie, which jumped from 0.7185 to a high of 0.7249. However, economists at Westpac believe that near-term trade below 0.70 is plausible.

Turbulent equity markets keeps a lid on the aussie

“Yield spreads should be more supportive of the A$ on a range of crosses for some time. But the fact that the aussie was back below 0.72 later on Tuesday is a reminder of the headwinds facing AUD/USD in particular.”

“The Fed’s quantitative tightening is underway and in coming months will accelerate, while +50 bp is locked in for both next week and late July, with talk of a September pause doused by key Fed officials. This is strong yield support for the US dollar. Moreover, A$ correlations with equities are elevated.”

“We see risks to the 0.7050-0.7100 area during June, though such weakness would provide opportunities to buy given likely more supportive conditions for A$ in Q3.”