Australian dollar traders are preparing for another volatile day in the market on Tuesday with the central bank set to raise interest rates by 25-basis points from 4.35% to 4.60% as it continues to fight tough inflationary conditions. Markets are pricing in a roughly 95% chance that they will increase the rate, so it is virtually a done deal for many in the market, however traders are expecting to see volatility in the currency around forward guidance from Michele Bullock and her team.
A 25bp hike accompanied by language suggesting further tightening is likely would probably be the most AUD-positive outcome, particularly if the RBA indicates that they are looking at further hikes in the near future, while a hike accompanied by more cautious guidance could produce a classic “buy the rumour, sell the fact” reaction in the Australian dollar.
The larger surprise would now be no change at 4.35% which would see the Aussie take a sharp drop south as markets reevaluate the path forward for rates.
The AUDUSD is now sitting just above recent lows on the Daily chart and traders will be using these strong technical levels to leverage into positions on the rate call and on the forward guidance delivered in the statement and press conference. A more hawkish outlook will allow traders to place long positions with stops under the close support levels, whilst a less hawkish or a surprise ‘hold’ could see those levels used for downside break trades.
Resistance 2: 0.7237 – 2026 High
Resistance 1: 0.7081 – Trendline Resistance
Support 1: 0.7001 – September Low and Trendline Support
Support 2: 0.6863 – June Low
