AUDNZD: Awaiting the RBA's decision

The Australian dollar might give back most of its recent gains against the U.S. if the Reserve Bank of Australia opts not to raise rates next week, given the groundswell of opinion backing a hike. Thirty-five out of 39 economists polled by Reuters expect the RBA to increase rates on Nov. 7, with only four predicting a hold. All of the “Big Four” Australian banks are in the majority forecasting a hike, including Westpac where newly-installed chief economist Luci Ellis was until recently assistant governor at the RBA. AUD/USD scaled a five-week peak of 0.6456 on Thursday, as the risk-sensitive AUD benefitted from global equity gains, hours after AUD/NZD notched a 19-week high of 1.0948.
If the RBA springs a dovish surprise and keeps rates unchanged on Tuesday, AUD/NZD pair could sag towards 1.0820 area. Australia’s central bank most recently raised rates in May (when 75% of economists polled by Reuters expected a hold).

With these in mind, we will follow a simple bearish setup and try to take a short position on a potential technical bounce with a stop loss above the previous top.

Trade with care
Like | Share | Comment

Comment:

📢 The Australian dollar retreated on Tuesday after the country’s central bank hiked interest rates as many had expected, but sounded non-committal on whether even tighter policy would be necessary. The Reserve Bank of Australia (RBA) lifted its cash rate by 25 basis points to 4.35%, ending four months of pauses and taking rates to their highest since late 2011. Yet the central bank also softened its previous position that “some” further tightening may be needed, instead saying “whether” a move would be necessary would depend on incoming data.
“There are good reasons to suspect today’s hike will be the last in the RBA’s current hiking cycle,” said Abhijit Surya, an economist at Capital Economics. “It’s clear that RBA remains concerned about potential overtightening, noting that weak consumption growth and dwellings investment were likely to contribute to below-trend growth.
Markets had implied a 70% chance of a hike this week, while the vast majority of analysts has expected a move. But futures (0#YIB:) moved to lengthen the odds on a further hike in December, which is now priced around 30%. The market also now shows some small prospect of an easing late next year, having previously priced out any chance at all.
Three-year bond yields (AU3YT=RR) eased back to 4.252%, after initially spiking to 4.359% when news of hike hit dealing screens. Yields on 10-year bonds AU10Y fell 5 basis points to 4.711%.
“The RBA still stands out among major central banks by delivering a Q4 2023 rate rise so the guidance hinting at a high hurdle for another hike shouldn’t hurt the Aussie on yield spreads too much,” said Sean Callow, a senior FX analyst at Westpac.

Trade closed: target reached:

Comment:

🔴 ...still bearish.

Trade closed: target reached:

TARGET 2 hit