November 1, 2022 05:11 AM ET
By:AnalysisWatch
The AUD/USD pair is consolidating its recent gains above 0.6400, after the rally stalled at 0.6450 in response to dovish remarks from Reserve Bank of Australia (RBA) Governor Philip Lowe.The central bank chief said the "board has judged it appropriate to raise rates at a slower pace," adding that "we are taking into account the pressure of higher rates and inflation on household budgets."
Earlier on Tuesday, the central bank raised its policy rate by 25 basis points, from 2.60% to 2.85%, as expected, while revising down its growth forecast for 2022 and the next two years. The Australian dollar briefly retreated to 0.6400 following the RBA announcements, but was eventually caught in a fresh wave of bidding as the US dollar lost further ground amid a risk-off rally in Chinese indices.
Chinese tech stocks rose and led broader indices higher after unconfirmed reports began circulating on social media that policymakers were making preparations to gradually abandon the strict COVID-ZERO policy. The risk-sensitive Australian dollar rose in tandem with Chinese markets, also taking advantage of an upbeat Caixin manufacturing PMI, which came in at 49.2 in October, versus 49.0 expected.
Meanwhile, markets are resorting to repositioning their long positions in the US dollar ahead of the Federal Reserve's important rate hike decision on Wednesday. The resulting dollar weakness is helping the pair stay comfortably afloat above 0.6400, despite the new low.
Later in the day, investors will be watching the US manufacturing PMI and the prices paid component for further dollar trades, while Wall Street sentiment will also play a key role. In addition, Australian building permits data to be released on Wednesday will be an incentive for trading. However, the main risk this week remains the Fed verdict.