Second RBA Hike, the Australian Dollar Struggles to Rally

Despite a second RBA hike, the Australian Dollar needs help rallying, hindering immediate upward momentum.

The Reserve Bank of Australia (RBA) is grappling with assessing inflation risks as it embarks on its second round of rate hikes. Despite discussions about a potential pause, the RBA opted for another 25 basis points hike this month, aiming to address inflation risks more effectively. Australia’s Q3 core inflation measure (trimmed mean) rose from 0.9% to 1.2%, prompting the committee to implement another rate increase.

Second RBA Hike, the Australian Dollar Struggles to Rally

However, the market had already factored in the widely anticipated rate hike, hindering the Australian Dollar (AUD) from capitalizing, coinciding with a US dollar decline.

 The resistance level at 0.6520 proved to be a pivotal point for AUD/USD, leading to a significant drop in price. The immediate support at 0.6365 weakens, particularly following Jerome Powell’s hawkish comments that strengthened recent USD gains.

A failure to maintain the 0.6365 level could push the pair down to 0.6272, representing the yearly low. Despite the awaited positive effects of China’s $1 trillion stimulus towards the end of the year, resistance at 0.6460 is countered by a bearish MACD crossover, indicating ongoing downward momentum. The longer-term outlook leans towards a recovery in AUD/USD, mainly as US data shows signs of softening. A decline in upside risks to US inflation and consistent weaknesses across economic indicators and the labor market will likely exert pressure on the greenback.

While many central banks globally are contemplating future rate cuts, the futures market for Australia doesn’t strongly anticipate the need for rate cuts. It suggests another hike before Q2 2024.

The trajectory of inflation in the coming months will play a crucial role, but the RBA’s latest projections leave room for one more hike, projecting a future rate of 4.5%.

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