The Australian dollar declined circa 0.3% during Tuesday’s trading session, ignoring the recent 50 bps rate hike.
Earlier today, the Reserve Bank of Australia (RBA) raised interest rates by 50 basis points without boosting the Australian dollar since the bank expressed uncertainty about the precise magnitude of the rate rise.
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The Board is dedicated to taking the necessary steps to guarantee that inflation returns to its goal. The Board is dedicated to gradually bringing inflation down to the 2-3% level. It aims to accomplish this while maintaining a stable economy.
The Board anticipates raising rates during the upcoming months. However, the board is not moving on a predefined path.
The facts and projections for inflation and the labor market will serve as guidance for the size and timing of future increases. Inflation is expected to peak later this year and then decline back towards the 2–3% range.
To summarize the monetary policy decision, on the one hand, the rate increase was anticipated by most people. Still, on the other side, the RBA is keeping a low profile on more aggressive rate rises. Instead, it retains the discretion to make decisions from meeting to meeting based on new information.
“In view of the globally increased inflation risks, this does not seem decisive enough for the market, which is why AUD/USD is heading south this morning.” economists at Commerzbank reported.
Moreover, since the beginning of the year, RBA policy has not been a significant factor in AUD swings. Another example is today’s somewhat subdued response to the 50 basis point rate rise. In addition, the RBA rate expectation curve may need to be dovishly re-priced if rate hikes are reduced to 25 basis points going forward.
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Downside risks are still relatively high since external factors, particularly risk sentiment and China’s outlook, continue to be essential for the AUD outlook in the short future.
“Our forecasts for AUD/USD still embed a small recovery by year-end but are mostly justified by USD seasonal weakness in December, and any rally may still struggle to go far beyond the 0.70 mark.” ING analysts said on Tuesday.
In other news, the services sector’s ISM survey, which is scheduled to be released during the US session, is expected to significantly decrease from 56.7 to 54.9 in August.
Medium-term outlook remains bearish
Technically speaking, it looks like the AUD could retest July lows at 0.67 and if not held, the Aussie might continue further lower, likely targeting the 0.65 barrier (the lowest level since May 2020). On the other hand, the price must close above 0.69 to cancel the immediate bearish pressure.