RBA resumes rate hikes

Are all central banks pausing rate hikes?

The Reserve Bank of Australia decided to resume its tightening cycle by raising the cash rate by 25 bps, 4.35% up from 4.10%, while signaling a higher hurdle to further policy tightening, leading the Aussie to decline by 1% after the decision.

“The board judged an increase in interest rates was warranted today to be more assured that inflation would return to target”, Governor Michele Bullock said in her post-meeting statement. “Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks.”

AUDUSD near 0.64

AUDUSD declined back towards 0.6420 after the decision, losing a little bit over 1%. The question is, does this mean that the bullish trend is over? Not necessarily.

AUDUSD confirmed a new bullish trend since September 19^th, and the pair rallied by about 4% since Oct 26^th. Therefore, the current decline might be considered a short-term retracement before the upside trend resumes.

The current downside retracement might be limited within the area between 0.6395 and 0.6365 which represents 50% and 61.8% of the recent rally.

Fed tightening cycle is over

After the US Jobs Report last week, which showed a clear sign that the labour market is cooling, with no signs of wage inflation pressure, it’s safe to say that the Fed’s most aggressive tightening cycle in nearly 4 decades is over.

The Fed Fund Futures are not pricing in any rate hike ahead, December’s probability declined to 14% while January’s probability is now around 20%.

Moreover, the markets are now pricing in a possible rate cut in May with a 53% chance, while June’s probability is currently over 100%

DXY short-term retracement

The Dollar Index advanced slightly at the beginning of the week after declining to as low as 104.85 following the US Jobs Report on Friday.

The Index rebounded slightly on Monday and during the Asian session today to as high as 105.50. This is another short-term retracement before the downside trend resumes.

However, what matters the most in the coming weeks is the Fed Fund Futures. As long as the Fed Fund Futures continue to price in an earlier rate cut, the US Dollar might get weaker.

The current upside retracement is likely to remain limited below 105.50 and/or 106.0. On the downside view, 104.70 and 104.40 remain the main targets over the next two weeks.

Gold retreats

Gold declined back after it failed to break above $2000 last week, despite the US Dollar’s weakness.

The current decline is likely to continue towards the $1959 support area, while a breakthrough that support would clear the way for further declines towards $1950 and $1940.

Despite the current declines, traders should keep an eye on the current conflict in the Middle East, as any escalation in the region might lead to another leg higher, but this time, Gold is likely to break above $2000.

Prepared by Nour Hammoury, Chief Market Analyst at SquaredFinancial
Nour is an investor, independent market strategist, and financial advisor. He holds a BA in Finance and Banking Science from Al-Ahliyya Amman University and a CFTe in Economics from the International Federation of Technical Analysts. He has more than 15 years of experience in forex, stocks, and global economic developments, as well as central bank policies and intermarket analysis. He appears regularly on major international TV networks, such as BBC, Al-Jazeera, Al Hurra, CNBC, and Bloomberg, holding open discussions and sharing insights and readings of the markets and trends.

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