Chapter 20 10/03 AUDUSD: It Is Recommended to Keep Going Short at the Highs Despite the Slow Pace of the Declin
Abstract: The Reserve Bank of Australia (RBA) maintained the status quo at its policy meeting on Tuesday, keeping the current interest rate unchanged at 4.10%, which put downward pressure on the AUD. Despite this, inflation in Australia is still at a disturbingly high level, and the market continues to maintain expectations for the RBA to raise interest rates again.
Fundamentals
At Michelle Bullock's first meeting as president, the RBA chose to keep its cash interest rate target at 4.10%, which was in line with market expectations. Despite this, the statement of the RBA has a strong tone, pointing out that "monetary policy may need to be further tightened". However, the exact process of this adjustment will depend on "data and changing risk assessment".
Although the RBA admits that inflation has peaked, it is still at a disturbingly high level. It observed a decline in commodity price inflation but pointed out a rapid increase in service prices, as well as significant increases in fuel and rental prices.
The RBA predicts that by the end of 2025, inflation will gradually return to the target range of 2-3%. This is consistent with their prediction that economic growth will remain below the trend level, and this trend is expected to continue. Therefore, they expect the unemployment rate to rise slightly, reaching about 4.5% by the end of next year.
The economic outlook is indeed shrouded in "great uncertainty". These variables include service price inflation, the delay of monetary policy transmission, and the response of enterprises in pricing and wages. Consumer behavior, especially household consumption patterns, is still an unpredictable factor.
On a global scale, the RBA has expressed concern about China's economy, especially considering the general turmoil in China's real estate market.
There is nothing new in RBA's statement today. In particular, the penultimate paragraph is very similar to last month's statement, with only minor adjustments in some wording, only acknowledging the inflation data in recent months. But even so, the worry about rising inflation in the service industry is balanced with the satisfaction that commodity inflation is still falling. The meeting did not specifically mention that the CPI data on October 25 was the key decision point.
Finally, as the Federal Reserve does not intend to shift to the loose mode, and Australia's strong terms of trade finally bring some additional support, and the risk-sensitive nature of the AUDUSD, the AUDUSD may be very "resilient to decline". But even so, the AUD may now be dominated by the USD again, and the USD is still the main driving factor.
Technical Analysis
During the Asian and European sessions on Tuesday, the AUDUSD fell sharply for the second consecutive day, and hit an 11-month low of 0.6306 earlier on Tuesday, indicating that it will continue to be bearish after limited adjustment.
As the Federal Reserve is expected to maintain high interest rates for a long time, the AUD is under pressure from the strength of the USD, and the policy decision of the RBA is the key driving factor this morning. The RBA kept the interest rate unchanged at 4.1% for the fourth consecutive month and said that the recent quite positive economic data indicated that things were developing in a good direction, but it did not rule out further tightening of policies when necessary.
The RBA's decision today also had a negative impact on the expectation of raising interest rates in November, betting that the RBA's expectation of raising interest rates in November dropped from the initial 44% to 36%, which may further suppress the AUD.
Specifically, the AUDUSD remains firmly bearish, although a new bear would need to close below last week's low of 0.6331 to confirm the signal and open the way for an extension towards last year's November 11 low of 0.6272, a target that is now underpinning a further slide in price towards the 2022 low of 0.6170.
The limited adjustment should be limited to a break below the Fibonacci 76.4% of 0.6403 to keep bears intact and provide better selling opportunities. It is recommended to go short at the highs with such a level as the benchmark.
Trading Recommendations
Entry price: 0.6403
Target price: 0.6210
Stop loss: 0.6530
Deadline: 2023-10-17 23:55:00
Support: 0.6305, 0.6300, 0.6272, 0.6210
Resistance: 0.6357, 0.6378, 0.6403, 0.6444
