The Australian dollar is the worst performing G10 currency today, dropping 1.3% against the US dollar and 2% against the Japanese yen. Prime reason behind AUD underperformance today is the RBA meeting but the increase in US-China tensions is also playing a role.
The Reserve Bank of Australia delivered a 50 basis point rate hike, in-line with market expectations. However, the statement cast some doubts over the pace of the tightening going forward. According to the RBA statement, there is no pre-set path of rate hikes that the Bank is following. While this is not new info - RBA speakers, including Governor Lowe, said it earlier - including it in an official statement boosts its significance. Interest rate markets reacted quickly - market odds of a 50 basis point rate hike in September dropped from around 82% yesterday to just 17% today. As markets expect RBA tightening to slow, weakness of AUD should not come as a surprise.
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Create account Try a demo Download mobile app Download mobile appAUD traders should also be on guard amid increased tensions between China and the United States. China used to target US allies in order to punish them for US actions. This was the case during the US-China trade war, when China targeted some Australian exports. Note that China has banned imports of food from over 100 Taiwanese factories today therefore it looks like it did not abandon its old playbook. This is one of the factors to watch should the US-China relationship deteriorate further.
Taking a look at AUDUSD chart at H1 interval, we can see that the pair is taking a dive today. Pair dropped below a key near-term support zone in the 0.6960 area, marked with 23.6% retracement of the recent upward impulse and the 200-hour moving average. The next level to watch is the lower limit of market geometry at 0.6925. A break below could hint at bearish trend reversal.
Source: xStation5
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