The Australian Dollar, AUD/USD, has sunk as a stone in the last 24 hours with a drop of nearly 1.5%, the weakest performance of all majors against the US dollar.
The onslaught in value comes on the heels of the latest RBA rate meeting. At the meeting, the Australian central bank opted to leave interest rates unchanged at 4.1% as they wait to see the impact of the sharp increases in Australian interest rates initiated in May 2022.
The bank notes that economic growth is below its typical rate and forecasts both the economy and employment growth to grow below trend.
When this happens, inflation will naturally return to its long-term range of 2-3%, as long as external factors do not drive the inflation. That said, the bank predicts inflation to reach its target range by the end of 2025.
As for their forecast of inflation, they said “Inflation in Australia has passed its peak, and the monthly CPI indicator for July showed a further decline.” A clear signal to the market that there is no need to increase interest any further at this junction.
The market was taken by surprise by the dovish tone and the prospect of no rate increases over the next few months, which sent the AUD/USD to near the August low of 0.6363.
When the market breaks a major level like August low, it will naturally seek out the next support level, in the case of the AUDUSD, the next major support level is the November 2022 low of 0.6272, followed by the October 2022 low of 0.6170.
The trend is also firmly bearish and will remain bearish as long as we trade below August 30 high of 0.6521.
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