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Title: AUD/USD drops below 0.6800 despite RBA’s rate hike, firmer sentiment

Writer's picture: analysiswatchanalysiswatch


September 6, 2022 02:50 AM ET


By: AnalysisWatch


Although the Reserve Bank of Australia (RBA) raised interest rates early Tuesday, AUD/USD remained down near the intraday low of 0.6783, ignoring firmer market sentiment as well as a pullback in the U.S. dollar index (DXY).


The RBA announced the fourth consecutive increase in the benchmark rate by 50 basis points, to 2.35%, while still meeting market expectations. The RBA's statement also mentioned that the board of directors is committed to doing what is necessary to bring inflation back to its target.


However, market participants failed to buy the Australian dollar, as the recently announced rate hike seemed widely anticipated and already priced in. Sluggish moves in Australian stock markets and concerns about slowing household spending in Australia could also pose a problem for AUD/USD buyers.


Nonetheless, 10-year U.S. Treasury yields rose 5.2 basis points (bps) to 3.25% at press time, helping U.S. benchmark bond prices reverse Friday's losses. Intraday gains of 0.50% in the S& P 500 Futures, as well as a pullback in the U.S. Dollar Index (DXY) from the previous day's 20-year high, may also reflect the risk-on mood.


It is worth noting that the improving COVID situation in China should have favored AUD/USD buyers, but this was not the case. Regarding COVID-19 conditions, according to Reuters, "China's Shenzhen city eased its COVID-19 lockout on Monday, while Chengdu, the capital of the southwestern province of Sichuan, extended its lockout for most people until Wednesday."


In addition, concerns ahead of the release of the U.S. services PMI for August, expected at 55.5 from 56.7 previously, could also be held responsible for AUD/USD weakness.


In addition to the US activity data, Australian gross domestic product (GDP) for the second quarter (Q2), expected at 1.0% q/q from 0.8% previously, will also be important for further momentum.

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