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Abstract: The minutes of the September monetary policy meeting released by the Reserve Bank of Australia (RBA) on Tuesday showed that the RBA is prepared to take additional measures to tighten monetary policy if inflation is more persistent than originally expected. Despite the preparations, compared with the USD, the lack of new hawkish signals in the minutes of the meeting may become a restraining factor for the AUD.

Fundamentals

The minutes of the RBA meeting held on September 5 showed that officials weighed two options for monetary policy: raising the cash interest rate target by 25 basis points or keeping it unchanged.

After fully considering the current economic situation, the members considered that maintaining the current cash interest rate was a more convincing choice, and stressed the need to allocate more time to measure the comprehensive impact of the monetary policy tightening implemented since May 2022. The basis of this consensus is to understand the serious delay of policy influence through economic transmission.

Among these considerations, members also emphasized the potential risks. Specifically, people are worried that the economic slowdown may be greater than expected. Factors such as possible weak consumption and increased downside risks of China's economy have attracted attention.

However, the minutes of the meeting reflected the tone of cautious optimism, and members concluded that "recent developments have not substantially changed the prospects". The general consensus remains that the economy still seems to be on a balanced track, inflation is expected to return to the target range, and employment growth is expected to maintain its momentum.

The AUDUSD continued its upward trend for the third consecutive day. It continued to rise above 0.6480 before the New York session. The AUDUSD is currently gaining upward support, probably because the market is cautious before the Federal Reserve announces its interest rate decision.

Given the moderate upward pressure, it is expected that any increase will stop at the previous high of 0.6523; In other words, it is unlikely to continue to break through 0.6523. For the downside, falling below 0.6447 will indicate that the current moderate upward pressure has been alleviated.

Technical Analysis

Following the double-top pattern in mid-July, the AUDUSD fell sharply, and it hit a low for several months in a row. Although the price seems to have successfully stabilized at a 10-month low and recovered some lost ground, the road to recovery is still quite difficult.

Despite this, the AUDUSD hit a three-week high of 0.6453 on Tuesday, staying above the 20-day SMA. However, the upward momentum does not seem to encounter resistance after breaking through the vicinity of 0.6480, and a decisive breakthrough is needed to clear the way to the level of 0.6500. The next important obstacle is near 0.6523 near the high at the end of August. Breaking through this level may lay the foundation for extending to 0.6570.

Alternatively, bearish behavior could lead to a sharp retracement after the price retests the top of the range at the 0.6523 area in order to retest the 10-month low at 0.6356. A break below this level could trigger a decline towards the November 2022 bottom at 0.6271. If this barrier also fails, then the focus could shift to the October 2022 low at 0.6169.

Overall, the rise in AUDUSD could be due to increased risk factors and such a rise may not be sustainable. Beware of a pullback of the same height after the price pulls higher. It is recommended to go short at the highs.

Trading Recommendations

Trading direction: Short

Entry price: 0.6510

Target price: 0.6269

Stop loss: 0.6545

Deadline: 2023-10-04 23:55:00

Support: 0.6476, 0.6447, 0.6413

Resistance: 0.6523, 0.6520, 0.6533