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AUD/USD: RBA Fine-Tunes Hikes, Changing Investor Sentiment

By FxPro Financial Services Ltd (Alexander Kuptsikevich)ForexOct 04, 2022 09:32AM ET
www.investing.com/analysis/audusd-rba-finetunes-hikes-changing-investor-sentiment-200630648
AUD/USD: RBA Fine-Tunes Hikes, Changing Investor Sentiment
By FxPro Financial Services Ltd (Alexander Kuptsikevich)   |  Oct 04, 2022 09:32AM ET
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The Reserve Bank of Australia raised its rate by 25 points to 2.6%, against an expected increase to 2.85%. Previously, the rate had been hiked by 50 points four times since June. The same decision was also predicted by the market this time.

RBA cash rate.
RBA cash rate.

In the commentary on the decision, central bank governor Philip Lowe argued that more hikes were necessary. However, the fact that the RBA has moved ahead of many central banks from developed countries to fine-tune monetary policy has triggered sudden selloffs.

The AUD/USD pair lost 0.8% to 0.6450 on the surprise from the RBA, but on the back of general optimism in the markets, the pair rocketed higher, reaching 0.6550 at one point. At the time of writing, AUD/USD is trading near the day's lows again as traders overestimate the outlook for monetary policy.

The macroeconomic picture in Australia hardly justifies a move to such fine-tuning, with unemployment near half-century lows and inflation projected at 7.75% with a target of 2-3% in 2022.

Between 2001 and mid-2008, the Aussie was one of the favorite chips in the carry trade game, thanks to the RBA's high rates, trade surplus, and impressive economic growth.

The RBA's move of monetary policy from a run to one of the first among peers and at lower rates than in the US risks turning the Aussie into a lame duck.

AUD/USD monthly chart.
AUD/USD monthly chart.

This sudden rate cut also calls into question the AUD/USD's ability to recover quickly from the 0.6500 area as it has for the past 20 years.

It now seems that only a similar slowdown in policy tightening from the Fed could keep traders' interest on the Aussie side, and we should watch closely to see if the RBA knows something the rest of the world doesn't see.

AUD/USD: RBA Fine-Tunes Hikes, Changing Investor Sentiment
 

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AUD/USD: RBA Fine-Tunes Hikes, Changing Investor Sentiment

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