The Reserve Bank of Australia slowed down the pace, raising rates by 25 basis points at the last meeting, causing the AUDUSD to drop to the bottom. This does not help the RBA fight inflation, so a change in rhetoric is needed. Let’s discuss the topic and make up a trading plan.
Weekly Australian dollar fundamental analysis
Markets contributed to the AUD decline after the RBA unexpectedly slowed down the rate of monetary tightening. In early October, the Australian regulator raised the cash rate by 25 bps, although it had raised the rate by 50 bps four times before. Once the RBA officials realized what they had done, they tried to justify themselves. According to Vice Chairman Michelle Bullock, the regulator acted faster than everyone else until October, so now it is not among the outsiders.
Dynamics of Central Banks’ rates
Source: Bloomberg.
Being the leader of the global monetary restriction, nothing good will happen to your currency. AUDUSD easily reached the 0.62 target set at the end of September, and traders successfully added up to shorts on the breakout of 0.645 support in early October. The risks of a downtrend recovery are high, and the RBA officials realized what they had done. A weak currency is fueling inflation, and consumer prices of 6.1% are already far from the target range of 2-3%.
The RBA still has a lot of work to do, and its intention to keep the economy afloat is misplaced. According to Treasurer Jim Chalmers, Australia will avoid a recession due to strong domestic conditions. A strong labor market and high commodity prices help protect the economy from growing international risks. Even if a storm rages in the global economy, Australia will remain an island of tranquility.
The Treasury’s optimism is unusual as Westpac’s consumer sentiment has fallen to its lowest level since the pandemic. The number of pessimists is greater.
Dynamics of Australian household sentiment
Source: Bloomberg.
While the RBA officials say they are working hard and the Australian government is optimistic, the Aussie is at the bottom. The reasons for this are the deterioration in the commodity market due to fears of an approaching global recession, bearish trends in US stock indices, and the COVID-19 outbreak in China. The situation is so acute that Beijing postponed the release of third-quarter GDP data, scaring investors.
Weekly AUDUSD trading plan
What are the AUDUSD prospects? The pair’s future is uncertain due to the fact that the futures market expects the cash rate to rise from the current 2.6% to a ceiling of 3.1%, and the federal funds rate from 3.25% to 4.6%. It is very likely that the long-term target of 0.6 will be reached, as well as the previous one of 0.62. In such a situation, sell the AUD on the rise to $0.641 and $0.6435, or on the breakout of the supports at $0.624 and $0.62.
Price chart of AUDUSD in real time mode
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