The Australian dollar has resumed its rally against the US dollar. AUD/USD has risen to 0.7471, up 0.80% on the day. The pair is at its highest level since July 15th.

Markets expect RBA rate hike in 2022

The RBA minutes repeated the central bank’s well-worn message that economic conditions for a rate hike will not be met before 2024. The minutes also indicated that the RBA is projecting that the economy to show growth in Q4 after what is expected to be a decline in GDP in the third quarter. The minutes were relatively dovish, especially regarding rate the RBA’s rate policy.

The markets, however, have become increasingly sceptical about the RBA’s rate stance and have priced in a rate hike for mid-2022. Why are the markets much more hawkish about a rate hike? Inflation has been gaining steam in the major economies, and even though inflation is slightly below the RBA target, this could change as some Australian states have relaxed lockdown restrictions. As well, major central banks, led by the BoE are showing a shift to tightening policy, and the RBA may have to step in line and bring forward plans to normalise monetary policy. The Australian dollar has jumped on the expectations that the RBA will change guidance on the rate look, perhaps as early as this week. If this occurs, AUD/USD could continue to rally and move towards the 0.76 line.

The Aussie is also benefitting from improved risk sentiment on Tuesday, as the US dollar is broadly lower against Asian currencies, as well as the euro and the British pound. As well, higher coal prices have boosted the Australian dollar. China is looking to coal to alleviate energy shortage which is good news for Australian coal producers.

AUD/USD technical

The four-hour chart shows a bullish trend over the past several weeks. In the Asian session, AUD/USD broke above resistance at 0.7440 and is closing in on 0.7476, the September high.

On the downside, there is support at 0.7328 followed by 0.7236.


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