RBA Hikes by 25bps

As expected, the Reserve Bank of Australia (RBA) lifted the Official Cash Rate (OCR) target by 25bps in overnight trading. Following four consecutive months on hold at 4.10% and only the second meeting for the new RBA Governor Michelle Bullock, this brings the OCR to 4.35% (a 12-year peak). This means that since May of 2022, the RBA has increased rates by 425bps. Markets and economists widely expected today’s move, with only 3 economists out of 32 at Bloomberg leaning toward another pause.

In her post-meeting statement, RBA Governor Bullock noted:

‘CPI inflation is now expected to be around 3½ per cent by the end of 2024 and at the top of the target range of 2 to 3 per cent by the end of 2025. The Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe’.

‘Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome’.

The downside bias in the AUD/USD is thought to be mainly on the back of the dovish remarks in the post-statement, exchanging the following sentence from the October statement: ‘Some further tightening of monetary policy may be required’ to ‘Whether further tightening of monetary policy is required’. This indicates that this could be the last hike in this cycle, hence a dovish hike and consequently the bearish response in the AUD/USD.

Technical Pattern Vulnerable

Following the announcement, the AUD/USD, aside from a momentary spike north, is down more than -1.0% as of writing. Technically, the currency pair responded from resistance on the daily timeframe at $0.6502, placing a bold question mark on the lower limit of the monthly timeframe’s bearish pennant pattern between $0.6170 and $0.7158. This is a move that could eventually clear the way for support on the monthly chart at $0.6135.

As a result of the above, and taking on board that the longer-term trend is to the downside (easily seen on both the monthly and daily charts), support on the daily timeframe at $0.6397 will be a key watch going forward. A rebound from this level may imply that bears are not ready to venture beneath the monthly timeframe’s pattern structure. However, a daily close south of $0.6397 unearths a possible bearish scenario and throws light on the $0.63 psychological handle as an immediate downside target.

Monthly Chart:

Daily Chart:

Charts: TradingView

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