Oct 04, 2022
VOT Research Desk
Despite the impulsive response to the US Personal Consumption Expenditure (PCE) Price Index, the AUD/USD manages to hold above the yearly low (0.6363); however, the Reserve Bank of Australia (RBA) interest rate decision may not do much to support the exchange rate as the central bank has little interest in enforcing a restrictive policy.
Even as the Relative Strength Index (RSI) moves out of oversold territory, the AUD/USD appears to be trapped in a small range. It is unclear how another 50 basis point RBA rate hike will affect the exchange currency’s near-term outlook given that “inflation was forecast to peak later this year.” In order to keep the “economy on an even keel,” it appears that the RBA may change course.
Governor Philip Lowe and Co. may modify the forward guidance for monetary policy before 2023 because “members viewed the rationale for a slower pace of increase in interest rates.”
Thus, if the RBA announces plans to end the rate hike cycle, a dovish rate hike could trigger a bearish reaction in the Australian Dollar. As a result, the AUD/USD exchange rate may have challenges for the rest of the year as the Federal Reserve continues a repressive policy.
The Federal Open Market Committee (FOMC) is on track to deliver another 75bp rate hike in November, thus the recent rebound in the AUD/USD exchange rate may prove to be temporary. Additionally, a decrease in the exchange rate could accelerate the shift in retail mood seen throughout the year.
