The Reserve Bank of Australia raised its cash rate 25bp to 4.60% on Tuesday in a unanimous, hawkishly worded decision, yet AUD/USD reversed sharply and broke below 0.7000 within an hour. The selloff came after Governor Michele Bullock told reporters that further tightening being enough was a "hope" rather than a base case, undercutting the hawkish statement that preceded her remarks.
AUD/USD breaks 0.7000 after Bullock speaks
AUD/USD edged up to around 0.7021 after the 2:30pm AEST rate decision, a move of only a few pips.
The real reaction came an hour later, once Bullock began her press conference: the pair reversed and fell to around 0.6977, breaking the 0.7000 support zone. Near term, 0.7041 now stands as resistance, and the bearish correction stays intact as long as rebounds stay capped below that level.
A hawkish statement meets a cautious governor
The RBA's written statement gave little reason to doubt the inflation problem, citing higher global energy prices and domestic capacity constraints. According to ActionForex, the Board said "a further tightening in financial conditions is warranted."
But Bullock did not confirm another hike as the likely next step, instead stressing repeatedly that current rate hike restraint may already be enough. That gap between the statement and the governor's tone was enough to turn a small post-decision gain into a much larger selloff.
CPI print due Wednesday, but Bullock plays down its weight
Bullock said she would not put too much emphasis on Wednesday's August CPI print, arguing that the RBA needs to think forward rather than react to backward-looking data. She pointed to the lag from the rate hikes delivered between February and May, whose full impact can take 12 to 18 months to work through the economy. Markets currently price the odds of another 25bp hike in November at around 41%.
Dollar strength adds pressure
The Australian dollar traded around $0.70 ahead of the decision. The broader U.S. dollar index held near a two-month high and was on track for a 1.8% gain in September. DBS noted the pair had found support near $0.70 but struggled to recover because much of the RBA's expected tightening was already priced in, while renewed Fed hike bets reduced Australia's rate advantage. The next major downside target sits in the 0.6864–0.6824 zone, with 0.6756 as deeper support if that zone gives way.
Sources: ActionForex, Investinglive, Investing.com
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