The RBA Sinks the AUD/USD with a Cautious 25-Basis Point Rate Hike
It was a busy start to the Asian session for the AUD/USD. AIG Manufacturing and building approval numbers drew interest ahead of the RBA monetary policy decision and rate statement.
In September, the AIG Manufacturing Index climbed from 49.3 to 50.2. In August, building approvals surged by 28.1%, reversing an 18.2% slump in July. Economists forecast a 5.0% increase.
While the numbers were Aussie Dollar positive, the AUD/USD sat in negative territory ahead of the RBA monetary policy decision.
This morning, the RBA raised the cash rate by 25 basis points to 2.60%. Economists forecast a 50-basis point hike to 2.85%.
Salient points from the Rate Statement included,
- Further increases are likely to be required over the period ahead.
- The Board decided to increase the cash rate by 25 basis points this month as it assesses the outlook for inflation and economic growth in Australia.
- A further increase in inflation is expected over the months ahead before inflation declines back towards the 2-3% range.
- Medium-term inflation expectations remain well anchored, and it is important that this remains the case.
- Central forecast for CPI inflation is around 7.75% for 2022, just over 4% in 2023, and around 3% in 2024.
- The Board’s priority is to return inflation to the 2-3% range over time and seeks to do this while keeping the economy on an even keel.
- With global economic uncertainty lingering, the Board is closely monitoring the global economy, household spending, and wage and price-setting behavior.
- The size and timing of future interest rate increases will continue to be determined by the incoming data and the outlook for inflation and the labor market.
AUD/USD Price Action
At the time of writing, the Aussie was down 0.57% to $0.64779.
A mixed start to the day saw the Aussie Dollar rise to an early high of $0.65180 before tumbling to a post-RBA low of $0.64506.
The AUD/USD needs to move through the $0.6479 pivot to target the First Major Resistance Level (R1) at $0.6558. Following today’s RBA policy decision and rate statement, US economic indicators need to be softer to support another bullish session.
In the case of a breakout session, the Aussie would likely test the Second Major Resistance Level (R2) at $0.6601. The Third Major Resistance Level (R3) sits at $0.6724.
Failure to move through the pivot would leave the First Major Support Level (S1) at $0.6436 in play. However, barring a market flight to safety, the AUD/USD pair would likely avoid sub-$0.64 and the Second Major Support Level (S2) at $0.6357.
The Third Major Support Level (S3) sits at $0.6234.
Looking at the EMAs and the 4-hourly chart, the EMAs send a bearish signal. The AUD/USD sits below the 50-day EMA, currently at $0.65153. The 50-day EMA eased back from the 100-day EMA, with the 100-day EMA falling back from the 200-day EMA, delivering bearish signals.
An AUD/USD move through the 50-day EMA ($0.65153) would support a run at R1 ($0.6558). The 200-day EMA sits at $0.66967. However, failure to move through the 50-day EMA would leave the support levels in play.