Can the Trend Change for AUD/USD as RBA Remains Tightening?

Posted Monday, October 24, 2022 by
Skerdian Meta • 2 min read

AUD/USD has been on a bearish trend for more than a month, declining nearly 10 cents, as the UD kept surging higher, while risk assets such as commodity dollars turned negative. The Reserve Bank of Australia (RBA) raised interest rates earlier this month, although their hikes have been smaller than the FED, which has delivered three 75 bps rate hikes in the last three meetings.

But, the FED might be slowing down after the next 75 bps hike which has been planned.  The RBA on the other hand is picking up after rumours in summer that they were going to pause with rate hikes. Now we’re hearing comments that they will continue to raise rates further. So, this might be a good opportunity for AUD/USD to turn bullish.


AUD/USD H4 Chart – Moving Above the 100 SMA

We saw a sharp bullish move on Friday

Reserve Bank of Australia Meeting Minutes

  • Decision to raise rates by only 25bp was “finely balanced”
  • Smaller move warranted by the scale of hikes already delivered, lags in policy
  • The full impact of hikes yet to be felt in mortgage payments, wealth effect from falling house prices
  • Higher rates abroad are likely to “significantly lower” global growth, lessen inflation
  • Uncertain outlook argued for slower hikes for a time, would help hold public attention
  • Further increases in rates are likely over the period ahead, rates not “especially high”
  • Board emphasized the importance of keeping inflation expectations anchored
  • Some further rise in wage growth would not be a concern if inflation expectations anchored
  • Monthly CPI data confirmed a broad-based pick up in inflation, rents and utilities are expected to rise further
  • Data suggest household consumption held up well in Q3, supported by very tight labour market
  • A$ is still up on the year in trade-weighted terms, more important for inflation than the AUS/USD level

The Australian dollar ticked up a little on that ‘rates not especially high’ point in the October minutes. Besides the minutes, the RBA deputy governor Bullock said that further interest rate hikes are on the way in the months ahead.

Reserve Bank of Australia’s Deputy Governor Michele Bullock

  • Board expects to increase interest rates further over the coming months; pace and timing will be determined by data
  • Factors the board will monitor closely include the global economy, household spending and wage- and price-setting behaviour
  • Board is determined to do what is necessary to return inflation to target
  • Our policy rate trajectory has been as steep, or steeper, than other central banks
  • A very tight labour market starting to put upward pressure on wages
  • Rate rises, price rises starting to put pressure on household budgets
  • Board felt a 25 basis point rate rise was warranted in October while it took stock of developments in consumption, wages and the international economy
  • Was an active discussion internally and at the board meeting about the appropriate size of the October rate increase

AUD/USD Live Chart

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