The Australian Dollar (AUD) rallied against the US Dollar (USD) in the Tuesday morning session, buoyed by the Reserve Bank of Australia’s (RBA) hawkish commentary during its first meeting of 2024. While the central bank maintained the cash rate at 4.35%, as expected, the statement acknowledged ongoing inflation concerns and hinted at the possibility of further rate hikes in the future. This surprised markets, as recent inflation data showed a slower-than-anticipated decline and initially pushed the AUDUSD pair lower. However, the RBA’s hawkish stance countered initial expectations and triggered a bullish reversal.
Supporting the RBA’s cautious outlook is the persistence of high inflation despite a slight cooldown in the fourth quarter. Prices for services are not falling quickly enough, and the RBA remains vigilant in its fight to bring inflation back within the target range of 2-3% by 2025. Additionally, strong US economic data and hawkish signals from the Federal Reserve could continue to support the greenback, likely limiting the upside for the AUDUSD.
Technical
The 4-hour chart shows that the AUDUSD pair is currently at 0.65733, trading higher after the RBA decision, breaking above the 23.60% Fibonacci retracement level but still below the downward-sloping 20-SMA (green line), 50-SMA (blue line), and 100-SMA (orange line), indicating a prevailing bearish sentiment. Upward-sloping RSI approaching the 50 level (RSI = 44.74), indicating possible momentum shift.
With the price action buoyed by the recent RBA remarks, the 38.20% Fibonacci retracement level (0.65284) could act as the next significant level should the price action sustain a push above the 23.60% Fibonacci retracement level. A break above the 38.20% Fibonacci retracement level could confirm the bullish recovery, likely bringing the 61.80% Fibonacci retracement level (0.65652) and 0.65969 resistance levels into play.
However, short-term trading opportunities could arise towards the initial support at 0.64690 should the price action fail to sustain a push above the 23.60% Fibonacci retracement level. A break below initial support would likely bring the 0.64396 support level into play in the short term.
Summary
The AUDUSD exhibits short-term bullishness fuelled by the RBA’s hawkish commentary. However, this optimism faces challenges from the broader market environment. The price action must decisively break above the 38.20% Fibonacci retracement level (0.65284) to confirm a bullish recovery. However, failure to sustain momentum above the 23.60% level could lead to a retest of initial support at 0.64690.
Sources: TradingView, Trading Economics, Dow Jones Newswire, Reserve Bank of Australia, Reuters.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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