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AUD/USD drops to 3-mth lows after RBA hike, Chinese data

The Australian dollar declined today as the rate hiking cycle could be over soon in Australia.

The Australian dollar was down more than half a percent on Tuesday, falling to the lowest level since December as traders were not impressed by the latest RBA monetary policy meeting.

Dovish RBA hike

Earlier today, the Reserve Bank of Australia (RBA) board members increased the Official Cash Rate (OCR) by another 25 basis points (bps) from 3.35% to 3.60% in March, as widely anticipated.

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The Australian central bank even stated that more monetary tightening is planned. However, fears about a lack of upward potential for the Official Cash Rate (OCR) and a lack of hawkish surprises appear to have impacted the AUD/USD exchange rate.

On the same thread may be the RBA announcement indicating that the Consumer Price Index (CPI) signal suggests an inflationary peak.

Furthermore, the Board seeks to bring inflation to the 2–3% target range while maintaining economic stability, but the route to ensuring a smooth landing remains problematic.

Lastly, uncertainty surrounds the timing and magnitude of the household expenditure decline. Due to the tighter financial conditions, household spending growth has slowed.

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In other news, during the months of January and February, imports and exports declined, resulting in a substantial increase in China’s trade surplus in US dollars. The Trade Balance came in at $116.8 billion, compared to the $81.8 billion anticipated and $78 billion before.

Tuesday at the Australian Financial Review (AFR) summit, Australian Prime Minister (PM) Anthony Albanese discussed Australian-Chinese ties and the prognosis for the economy.

“I think it is good that the relationship has become more stable. We want a more stable, secure region. The relationship with China has improved,” he said.

Later today, FOMC Chairman Jerome Powell is keenly anticipated to speak before the Senate Banking Committee. The testimony usually comes in 2 parts: first, he reads a prepared statement (a text version is made available on the Fed’s website at the start), then the committee will hold a question and answer session. Since the questions are unknown beforehand, they can make for unscripted moments that lead to heavy market volatility.

Bear market resumes

The previous support zone near 0.67 was taken out, confirming the medium-term bearish bias. As a result, the next target will likely be at December lows of 0.6635, and if not held, we might see a larger decline toward 0.65.

On the other hand, should the Aussie jump back above 0.67, it could be a solid bullish signal, likely targeting the 200-day moving average (the blue line) near 0.6785.

AUD/USD daily chart

AUD/USD daily chart, source: author´s analysis, tradingview.com

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