Bullish view
- Buy the AUD/USD pair and set a take-profit at 0.6500.
- Add a stop-loss at 0.6350.
- Timeline: 1-2 days.
Bearish view
- Sell the AUD/USD pair and set a take-profit at 0.6350.
- Add a stop-loss at 0.6465.
The AUD/USD exchange rate retreated sharply after the latest Reserve Bank of Australia (RBA) interest rate decision. The pair dropped to the important psychological level of 0.6400, lower than this week’s high of 0.6522.
Final RBA rate hike?
The biggest AUD/USD news of the week was the decision by the Reserve Bank of Australia to hike rates by 0.25%. It pushed the main lending rate to 4.35%, the highest point in over 12 years in a bid to fight the elevated inflation.
In a statement, the bank left the door open for another rate hike. It noted that inflation remained uncomfortably high and that it would likely move to the 2% target by 2025.
Nonetheless, economists believe that the central bank will likely maintain rates at the current level for a few months. This explains why the Australian dollar retreated. The other reason was that the rate hike was already priced in by market participants.
The pair also retreated after several Federal Reserve officials talked. In a statement, Neel Kashkari said that the Fed’s fight against inflation was far from over and that the bank was ready to do more if needed.
In a separate statement, Austan Goolsbee, the head of Chicago Fed, said that the bank was succeeding in bringing inflation down without causing a recession. He avoided speculating where rates will move to in the next meeting.
Most economists expect the Fed will leave interest rates unchanged in its meetings in December, February, and March. Besides, inflation has already dropped at a fast pace in the past few months. And with the price of crude oil falling, there is a likelihood that inflation will continue falling in the coming months.
The next important AUD/USD news will be the upcoming statement by Jerome Powell, the head of the Federal Reserve. He will have a chance to respond to the recent Fed decision and the latest Non-Farm Payrolls (NFP) data.
AUD/USD technical analysis
The AUD/USD exchange rate dropped sharply after the latest RBA decision. As it slipped, the pair moved below the key support level at 0.6445, the highest swing on October 11th. The Relative Strength Index (RSI) has moved to 45 while the Average Directional Index (ADX) has drifted downwards.
The pair has also formed a small doji pattern and remains slightly above the 50-period moving average on the 4H chart. Therefore, the Aussie will likely bounce back in the coming days as buyers attempt to retest this week’s high of 0.6522.
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