After announcing six consecutive rate increases in the last meetings, the Reserve Bank of Australia (RBA) is up for another hawkish monetary policy outcome during the scheduled Interest Rate Decision around 03:30 AM GMT on Tuesday.
The RBA is, however, expected to slow down on the rate hike trajectory by lifting the benchmark interest rate by 25 basis points (bps) to 2.85%, mainly to fight inflation and match the tune with other major central banks. However, the odds of surprising markets with 0.50% interest rate lifts aren’t out of the table; hence, the AUD/USD traders are on edge ahead of the meeting announcements.
Ahead of the event, Westpac said,
Westpac anticipates that the RBA Board will lift the cash rate by 50bps to 3.10% – against consensus of a 25bp move – given the deteriorating inflation outlook and risks to entrenching strong inflationary psychology, the situation requires an urgent response. Pricing is around 30bp. The statement should include some reference to updated quarterly inflation and growth forecasts, details of which will be published in Friday’s Statement on Monetary Policy.
On the other hand, FXStreet’s Valeria Bednarik says,
The RBA began later with hikes and kick-started easing the first. The conservative stance is dovish itself, and markets are not expecting a hawkish surprise from Governor Philip Lowe.
How could the RBA decision affect AUD/USD?
AUD/USD picks up bids to renew intraday high around 0.6420 amid the market’s cautious optimism during early Tuesday. The quote’s recent recovery also takes clues from the firmer China’s Caixin Manufacturing PMI for October that improved to 49.2 versus 49.0 expected and 48.1 prior. Also keeping the buyers hopeful are the chatters that the RBA will opt for more rate hikes in the future, even if the size of the lift might deteriorate.
As per the latest Aussie data, inflation jumped to a multi-year high but the economic fears also grew amid China’s covid woes and global supply crunch. The housing market problem also challenges the RBA hawks and strengthens the bearish bias surrounding the AUD/USD.
That said, a 0.25% rate hike appears already priced in and may offer a knee-jerk reaction, highlighting the pace of bond purchase as the key catalyst. Should the policymakers appear cautious and ease on bond purchases or surprise the markets by suggesting neutral rates, the bears may concentrate more on the US dollar strength and rush towards the yearly low. On the contrary, an intact bond purchase, hawkish rate statement, and/or 0.50% rate hike could tease the AUD/USD bulls.
Technically, AUD/USD rebounds from a 10-DMA support, around 0.6380 at the latest. Also supporting the quote’s recovery are the bullish MACD signals and the steady RSI. However, the upside room appears limited as a descending resistance line from mid-August, close to 0.6490, could challenge the bulls. Following that, the previous week’s peak of 0.6522 and 38.2% Fibonacci retracement level of August-October declines, near 0.6540, will be crucial to cross for the AUD/USD pair buyers to keep the reins.
Alternatively, a downside break of the 10-DMA support near 0.6380 isn’t a sure signal for the bear’s return as a convergence of the 21-DMA and a two-week-long support line, close to 0.6355, will be a tough nut to crack for the AUD/USD sellers before retaking the control.
Key quotes
AUD/USD Forecast: Bears maintain the pressure ahead of the RBA’s decision
AUD/USD Price Analysis: Bounces off 10-DMA to welcome buyers near 0.6400 ahead of RBA
Reserve Bank of Australia Preview: Lowe and co have a tough decision to make
About the RBA interest rate decision
The Reserve Bank of Australia announces RBA Interest Rate Decision. If the RBA is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view of the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as unfavourable, or bearish.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD retreats from daily highs, holds above 1.0800
EUR/USD loses traction but holds above 1.0800 after touching its highest level in three weeks above 1.0840. Nonfarm Payrolls in the US rose more than expected in June but downward revisions to May and April don't allow the USD to gather strength.
GBP/USD struggles to hold above 1.2800 after US jobs data
GBP/USD spiked above 1.2800 with the immediate reaction to the mixed US jobs report but retreated below this level. Nonfarm Payrolls in the US rose 206,000 in June. The Unemployment Rate ticked up to 4.1% and annual wage inflation declined to 3.9%.
Gold approaches $2,380 on robust NFP data
Gold intensifies the bullish stance for the day, rising to the vicinity of the $2,380 region following the publication of the US labour market report for the month of June. The benchmark 10-year US Treasury bond yield stays deep in the red near 4.3%, helping XAU/USD push higher.
Crypto Today: Bitcoin, Ethereum and Ripple lose key support levels, extend declines on Friday
Crypto market lost nearly 6% in market capitalization, down to $2.121 trillion. Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP) erased recent gains from 2024.
French Elections Preview: Euro to “sell the fact” on a hung parliament scenario Premium
Investors expect Frances's second round of parliamentary elections to end with a hung parliament. Keeping extremists out of power is priced in and could result in profit-taking on Euro gains.