AUDUSD neutral

The RBA has spoken, we are waiting for the Fed's decision

01 November 2022 101
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The AUDUSD pair managed to rebound up almost 6% from its two-year low of 0.617 in the second half of October. And this week will determine the further trajectory of the AUDUSD movement, as the Australian and US regulators hold their regular meetings on monetary policy.


The Reserve Bank of Australia (RBA) has already managed to raise the key rate by 0.25% to 2.85% for the second time in a row today. Despite last week's higher-than-expected inflation figures, the RBA considered the minimum rate increase sufficient. More and more concerns are caused by the state of the real estate market, where prices have been falling for 6 months in a row. Most mortgages in Australia are issued at floating interest rates, and monetary tightening could make servicing such debt unsustainable for borrowers. This acts as a deterrent for the RBA, preventing a more decisive increase in the key rate.


Despite similar problems with the real estate market in the US, the Fed still had no big doubts about the need for further tightening of monetary policy. So, the data on GDP for the 3rd quarter, presented last week on Thursday, strengthened the belief that the American economy is still coping quite well with the rate hike that has already taken place. More important now is not the fact that the key rate was raised by 0.75% on November 2 (it has already been taken into account in asset prices), but the forecast for the last meeting of the year in December and for 2023.


The softening of the rhetoric of Fed officials may lead to a sharp drawdown of the dollar and the growth of the AUDUSD pair to local highs in the range of 0.65-0.655. However, without an actual slowdown in the process of raising rates, the decline in the dollar is likely to be short-lived. Moreover, in addition to high yields, dollar assets have a protective status, and the Australian currency clearly does not possess these qualities.


The following trading strategy options can be offered:


1) Sell the AUDUSD pair at the current price. Take profit 1 – 0,637. Take profit 2 – 0,63. Stop loss – 0,65.


2) Sell the AUDUSD pair when rising to the level of 0.65. Take profit 1 – 0.637. Take profit 2 – 0.63. Stop loss – 0.655.


Also, traders, at their discretion, can use a Trailing stop instead of a fixed Stop loss.

This content is for informational purposes only and is not intended to be investing advice.

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