AUD/USD News and Analysis
- RBA struggling to judge inflation risks as the RBA restarts hikes for second time
- AUD/USD continues to move lower after rate hike was largely priced in
- Futures market anticipates no rate cuts next year with potential for one more hike
- The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library
RBA Still Struggling to Judge Inflation Risks
The RBA has paused and resumed rate hikes twice this year with this month seeing another 25 bps hike despite discussions of another pause having taken place. In the end, it was decided that a hike would provide greater assurances that inflation risks are being delt with seriously. Australia’s core measure of inflation for Q3 (trimmed mean) revealed a move higher from 0.9% to 1.2% - motivating the committee to raise rates one more time.
However, AUD was unable to build on this as a hike was largely expected and had been priced in at the same time the US dollar sold off. The level of resistance around 0.6520 provided the perfect pivot point for AUD/USD, sending price action sharply lower. Immediate support appears at 0.6365 and appears to be faltering after Jerome Powell added a boost to recent USD gains with his hawkish comments yesterday.
Failure to hold 0.6365 would see 0.6272 appear as the next level of support – which marks the yearly low. The Aussie dollar is yet to feel the positive effects of China’s $1 trillion stimulus which it is likely to trickle down into the end of the year. Resistance lies at 0.6460 but the bearish MACD crossover suggests momentum remains to the downside for now. The longer-term outlook favours a recovery in AUD/USD as US data appears to be softening. When upside risks to US inflation decline on a material basis and weakness is being observed on a consistent basis across economic data points and the labour market, the greenback is likely to come under pressure.
AUD/USD Daily Chart
Source: TradingView, prepared by Richard Snow
| Change in | Longs | Shorts | OI |
| Daily | -18% | 6% | -7% |
| Weekly | -21% | 26% | -3% |
While other central banks are facing expectations of rate cuts on the horizon, the futures market is not seriously anticipating the need to cut rates in Australia and is actually revealing the real possibility of another hike being required before the end of Q2 2024.
A lot will depend on how inflation progresses over the coming months but the latest projections from the RBA make room for one more hike as they anticipate a future rate of 4.5%.
Implied Basis Point Rises for the Australian Interest Rate
Source: Refinitiv, prepared by Richard Snow
--- Written by Richard Snow for DailyFX.com
Contact and follow Richard on Twitter: @RichardSnowFX
