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Abstract: On Tuesday, the Reserve Bank of Australia (RBA) raised the cash interest rate by 25 basis points to 4.35%, the highest level since November 2011, the first rate hike since June, and the first time since the new RBA Chairman Bullock took office, which is in line with market expectations. The RBA has kept interest rates unchanged for four consecutive meetings in the past. Due to the rapid replenishment of the USD, the RBA's continued tightening policy failed to benefit the AUDUSD.

Fundamentals

The RBA announced that it would raise its cash interest rate target by 25 basis points to 4.35%, in line with market expectations. With this move, the RBA sent a signal to shift to a neutral policy stance, saying that "whether it is necessary to further tighten monetary policy will depend on data and changing risk assessment".

In a statement, the RBA said that inflation was "still too high" and proved to be "more persistent than expected a few months ago". The interest rate hike today is to "be more confident" that inflation will return to the target level within a "reasonable time range".

Market observation: The policy prospect of the RBA is affected by "great uncertainty", especially the persistence of inflation in the service industry, which shows obvious flexibility in the international arena and may be reflected in the market.

In the case of slowing economic growth, the effectiveness of monetary policy changes and the response of wage setting and pricing decisions are unpredictable areas, especially considering the current tight labor market. The prospect of household consumption is also full of uncertainty.

Looking overseas, the RBA's statement revealed the persistent global uncertainties, especially the economic trajectory of China and the far-reaching impact of international conflicts, which further increased the dimension of RBA's consideration.

Overall, the interest rate hike is in line with expectations. After the CPI data in the third quarter was higher than expected, the market began to price the interest rate hike. After staying put since June, the new RBA Bullock told the market that the RBA will focus on reducing inflation despite signs that the labor market is weakening. This decision reminds investors that the Fed not only relies on data but also that every meeting is a real-time reflection of economic data. This means that the fluctuation of global bond yields will continue.

The AUD's response is a typical " buying the rumor and selling the news". In the past few weeks, the expectation of raising interest rates has been heating up, making the AUD one of the biggest gainers among G10 currencies. At the same time, the rapid replenishment of the USD and the continued tightening of policies by the RBA failed to benefit the AUDUSD.

Technical Analysis

The AUD continued to fall despite a 25-basis-point rate hike by the RBA on Tuesday. The AUDUSD also faced losses due to the positive performance of U.S. Treasury Securities yields, which helped the USD rebound from two-month lows.

With today's sharp pullback, the AUDUSD's intraday bias has shifted from extremely strong to neutral. For now, another rise will remain modest as long as the minor support at 0.6411 holds. Moreover, a sustained break above 0.6510 resistance would indicate that the overall decline from 0.7156 could be completed in three waves down to 0.6269. The bulls could then test a stronger rally off the medium-term trendline resistance (currently at 0.6700). However, a loss of support at 0.6411 would indicate that the stronger rally would end and would favor a turn back to the downside with a retest of the 0.6269 low.

From a broader perspective, we have yet to confirm that the downtrend that started from the 2021 high of 0.8010 has been completed. While the current rally from 0.6269 could continue higher, it could just be the third leg of the corrective pattern from 0.6169 (2022 low). For now, the medium-term bearish trend will persist as long as the 0.6894 resistance level is held. It is recommended to go short at the highs with the bulls recovering moderately below the 0.6510 level

Trading Recommendations

Trading direction: Short

Entry price: 0.6475

Target price: 0.6219

Stop loss: 0.6535

Deadline: 2023-11-21 23:55:00

Support: 0.6411, 0.6386, 0.6345

Resistance: 0.6475, 0.6502, 0.6522