While markets have been absorbed with geopolitical factors and huge moves in precious metals over the last few days, underlying fundamentals will come back to the fore, at least for a short while, for Aussie dollar traders on Tuesday when the Reserve Bank of Australia makes its latest interest rate decision. The market is strongly pricing in the change (70%) of a 25-basis point rate cut as recent data has pointed to a strong economy. Continued inflation pressure with annual CPI up at 3.8% and a strong labour market that saw 65,000 new jobs added in December and the Unemployment Rate drop to 4.1% has seen those rate hike expectations increase and the Aussie dollar gain ground against the dollar and on the crosses.
These conditions should set up some interesting trading opportunities on the decision. It would be a surprise if they decided not to hike at this meeting but not a huge one, but it would certainly see some good Aussie selling but the more likely scenario is that we will see a hike and the moves will come on the back of forward guidance from the bank. A hawkish hike should see the Aussie rally strongly, while a neutral or dovish (much more unlikely) hike will probably see the currency retreat, the latter is now a possibility given recent market volatility, although in general most central banks will stick with the data.
The Aussie had recent risen to levels not seen since early 2023 but has fallen back in the last few sessions on the back of a stronger US dollar and increased volatility in global markets in general. A hike combined with a more hawkish outlook should see the pair look to challenge those recent highs up near 71 cents, a more cautious hike could see it drop further into the range, whilst a hold should see a much more aggressive move south.
Resistance 2: 0.7157 – 2023 High
Resistance 1: 0.7094 – 2026 High and Trendline Resistance
Support 1: 0.6807 – 200-Day Moving Average
Support 2: 0.6730 – Trendline Support
