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AUD/USD forecast ahead of the RBA rate decision

By:
on Oct 31, 2022
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  • The AUD/USD price pulled back slightly on Monday.
  • Focus shifts to the upcoming RBA interest rate decision.
  • Economists expect another 0.25% rate hike.

The AUD/USD price pulled back slightly ahead of the upcoming interest rate decision by the Reserve Bank of Australia (RBA). It slipped to a low of 0.6385, which was about 2% below the highest point last week,

RBA interest rate decision

The RBA will conclude its two-day meeting on Tuesday and deliver its highly-anticipated decision. Most analysts expect that the bank will continue hiking interest rates by 0.25%. If this happens, it will be the second consecutive meeting in which the bank has hiked by 25 basis points.

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Some analysts believe that the RBA will hike by 0.50% to fight the stubbornly high inflation. Data published last week showed that Australia’s inflation jumped by 7.3% in the third quarter, as we wrote here. In his budget last week, Australia’s Treasurer, Jim Chalmers, said that he believes that inflation will end the year at about 7.7%.

The RBA is fighting two battles at once. First, it is attempting to reduce inflation, which is at the highest level in more than two decades. At the same time, it is fighting to prevent a recession that leads to job losses. 

Recent data shows that high-interest rates are having an impact on the Australian economy. House prices have slipped sharply as demand wanes. At the same time, retail sales rose by just 0.6% in September while wage growth has been slow.

The AUD/USD will also react to a potential rate hike by the Federal Reserve. Economists expect that the bank will hike interest rates by another 0.75% in this meeting. A hawkish Fed will signal a divergence between the Fed and the RBA.

Another key AUD news was the latest Chinese economic numbers. China’s manufacturing PMI declined from 50.1 to 49.2 while non-manufacturing PMI dropped to 48.7. The composite PMI declined to 49.

AUD/USD forecast

AUD/USD

The four-hour chart shows that the AUD/USD pair has been in a bearish trend in the past two days. It has managed to move below the upper side of the ascending channel shown in blue. The coin has moved slightly above the important support level at 0.6365. This support was its lowest level on September 28.

Therefore, the pair will likely continue falling as sellers target the lower side of the channel at 0.6300. A move below the lower side of the channel will open the possibility of the pair dropping to the year-to-date low of 0.6200.

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