RBA Keeps Interest Rates Unchanged, Markets Brace for Possible Rate Cut
The Reserve Bank of Australia decided to keep interest rates unchanged on Tuesday, leading to a significant shift in market sentiment. Traders are now pricing in a greater than 50% chance of an RBA rate cut in February. This decision has put the Australian dollar under pressure, with expectations of a rate cut by the Reserve Bank of Australia.
AUD/USD Outlook and Market Reaction
The outlook for the AUD/USD pair shows weakness in the Australian dollar following the increased expectations of a rate cut by the RBA. This has led to a decline in the Australian dollar, while the US dollar remained steady as traders awaited the US Consumer Price Index report.
The Reserve Bank of Australia’s decision to maintain interest rates at the current level and adopt a less hawkish tone on inflation has boosted speculation of a rate cut. Market participants had anticipated the decision to hold rates, but the shift in the RBA’s tone caught many off guard, leading to a sharp reaction in the markets.
Market Reaction and Expectations
With policymakers expressing more confidence in reaching the inflation target, expectations of a rate cut in February have risen to over 50%. Initially, a rate cut was expected in May, but the recent developments have accelerated the timeline. This shift in expectations has caused the Australian dollar to weaken, reaching a four-month low as traders adjust to the new outlook.
Meanwhile, the US dollar has maintained its stability as market participants await the US Consumer Price Index report for further insights into potential Fed rate cuts. The markets are currently pricing in a rate cut by December, but any surprises in the inflation data could alter this prediction.
Technical Analysis: AUD/USD Support Levels
On the technical side, the AUD/USD pair is approaching the key support level of 0.6375. The price is trading below the 30-SMA, with the RSI indicating a bearish sentiment below 50. This suggests a strong bearish bias in the short term, although there have been periods of consolidation within the overall downtrend.
Previously, the price range was between the support level of 0.6450 and the resistance level of 0.6550. The recent break below the support level indicates a continuation of the downtrend, with a potential new range forming between 0.6375 and 0.6450. If bearish momentum persists at the 0.6375 support level, the price could make a new low in the downtrend.
Source : www.forexcrunch.com