FX.co ★ Wiking | AUD/USD

The Australian Dollar (AUD) is lagging its key currency counterparts on Tuesday, down 0.45% to 0.6965 against the US Dollar (USD) during European trading hours. This is because the Australian Dollar faces heavy selling pressure amid expectations that the Reserve Bank of Australia (RBA) is unlikely to raise rates again after increasing the official cash rate to 4.85%. ING analysts point out that the Aussie Dollar “came under pressure this morning after the RBA raised rates as expected to 4.85%, but sent some dovish signals.” The analysts point out that “the 6-3 split implies less conviction regarding today’s decision than in the markets, where a hike (21bp) was almost entirely priced in.” The analysts explain that the policy position is more conservative than investors anticipated. According to ING, “the statement omitted any mention of further hikes for the first time since June,” and “the economic outlook was revised significantly downward, with emphasis on falling house prices hitting consumer confidence and upside risks to unemployment.” In the press conference, Governor Michele Bullock “emphasized the RBA’s wait-and-see approach, as monetary tightening needs to have an impact on the economy yet.” ING said, “She left the door open to further tightening, but the bar is clearly higher now,” with the RBA seeming “happy to assess the impact of previous hikes before acting again.” “This is in line with our forecast of no further RBA hikes,” ING also said. The main driver for the Aussie Dollar will come from the Trade Balance report for September on Thursday. Meanwhile, the US Dollar will trade cautiously ahead of US midterm elections in the late North American session. The strategists at ING stated that “we don’t expect today’s US midterm results to cause structural shifts in FX, but the Dollar may experience some short-term pressure should the Democrats win control of both the House (as expected) and the Senate (close contest).” The baseline scenario remains that “markets fully price in a Republican loss of the House, but not a Democratic sweep,” adding that “a blue sweep can put some pressure on the Dollar.” ING notes that “the threat of additional regulations on the sector is expected to put pressure on its shares (as was visible in the past couple of days for the dollar). Meanwhile, there is a danger that the markets may begin to price in more chances of decisions being blocked by disagreements concerning topics like government spending and the debt ceiling.” Nevertheless, the analysts highlight that “in our view, this is unlikely to be significant enough to initiate a structural directional change in the dollar. The US dollar is currently driven mainly by the FED story. This should not be directly impacted by the midterm outcome.” On the daily chart, AUD/USD is trading at 0.6967, indicating a negative near-term bias as it trades below the 20-day Exponential Moving Average (EMA) of 0.7008. An RSI near 42 indicates little downside momentum but no oversold condition. To the downside, the first support is located near 0.6904, which was previously broken, followed by the structure’s trend-line support of 0.6834. To the upside, the first resistance is located at the 20-day EMA level of 0.7008. A breakout above this resistance is needed to ease bearish pressure and support a constructive recovery.