When is the RBA Interest Rate Decision and how could it affect AUD/USD?

After announcing six consecutive rate increases in the last meetings, the Reserve Bank of Australia (RBA) is up for another hawkish monetary policy outcome during the scheduled Interest Rate Decision around 03:30 AM GMT on Tuesday.

The RBA is, however, expected to slow down on the rate hike trajectory by lifting the benchmark interest rate by 25 basis points (bps) to 2.85%, mainly to fight inflation and match the tune with other major central banks. However, the odds of surprising markets with 0.50% interest rate lifts aren’t out of the table; hence, the AUD/USD traders are on edge ahead of the meeting announcements.

Ahead of the event, Westpac said,

Westpac anticipates that the RBA Board will lift the cash rate by 50bps to 3.10% – against consensus of a 25bp move – given the deteriorating inflation outlook and risks to entrenching strong inflationary psychology, the situation requires an urgent response. Pricing is around 30bp. The statement should include some reference to updated quarterly inflation and growth forecasts, details of which will be published in Friday’s Statement on Monetary Policy.

On the other hand, FXStreet’s Valeria Bednarik says,

The RBA began later with hikes and kick-started easing the first. The conservative stance is dovish itself, and markets are not expecting a hawkish surprise from Governor Philip Lowe.

How could the RBA decision affect AUD/USD?

AUD/USD picks up bids to renew intraday high around 0.6420 amid the market’s cautious optimism during early Tuesday. The quote’s recent recovery also takes clues from the firmer China’s Caixin Manufacturing PMI for October that improved to 49.2 versus 49.0 expected and 48.1 prior. Also keeping the buyers hopeful are the chatters that the RBA will opt for more rate hikes in the future, even if the size of the lift might deteriorate.

As per the latest Aussie data, inflation jumped to a multi-year high but the economic fears also grew amid China’s covid woes and global supply crunch. The housing market problem also challenges the RBA hawks and strengthens the bearish bias surrounding the AUD/USD.

That said, a 0.25% rate hike appears already priced in and may offer a knee-jerk reaction, highlighting the pace of bond purchase as the key catalyst. Should the policymakers appear cautious and ease on bond purchases or surprise the markets by suggesting neutral rates, the bears may concentrate more on the US dollar strength and rush towards the yearly low. On the contrary, an intact bond purchase, hawkish rate statement, and/or 0.50% rate hike could tease the AUD/USD bulls.

Technically, AUD/USD rebounds from a 10-DMA support, around 0.6380 at the latest. Also supporting the quote’s recovery are the bullish MACD signals and the steady RSI. However, the upside room appears limited as a descending resistance line from mid-August, close to 0.6490, could challenge the bulls. Following that, the previous week’s peak of 0.6522 and 38.2% Fibonacci retracement level of August-October declines, near 0.6540, will be crucial to cross for the AUD/USD pair buyers to keep the reins.

Alternatively, a downside break of the 10-DMA support near 0.6380 isn’t a sure signal for the bear’s return as a convergence of the 21-DMA and a two-week-long support line, close to 0.6355, will be a tough nut to crack for the AUD/USD sellers before retaking the control.

Key quotes

AUD/USD Forecast: Bears maintain the pressure ahead of the RBA’s decision

AUD/USD Price Analysis: Bounces off 10-DMA to welcome buyers near 0.6400 ahead of RBA

Reserve Bank of Australia Preview: Lowe and co have a tough decision to make

About the RBA interest rate decision

The Reserve Bank of Australia announces RBA Interest Rate Decision. If the RBA is hawkish about the inflationary outlook of the economy and raises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view of the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as unfavourable, or bearish.