Forex Market: AUD/USD at a 42-week high as RBA drops “patient” pledge, opens door to policy tightening

AUD/USD registered a fresh 42-week high on Tuesday, after the Reserve Bank of Australia dropped its pledge to be “patient” on policy tightening, while indicating the first interest rate hike in over a decade may be closer.

The RBA kept its official cash rate intact at a record low level of 0.10% for the 16th consecutive month during its policy meeting earlier on Tuesday, in line with market expectations.

“The RBA dropped its ‘patience’ narrative from the forward guidance for hiking, so what it means is the RBA is going to hike some time in the next few months,” Joseph Capurso, a strategist at Commonwealth Bank of Australia, was quoted as saying by Reuters.

“Aussie is comfortably going through that 75.40-cent resistance level, so we think it’s going to head closer toward 77 cents over the next few months, although it may pause at 76 cents for now,” the strategist added.

The RBA Board said that although a further increase in inflation was expected, it wanted to see actual evidence that the CPI was sustainably within the 2% to 3% target range before raising interest rates.

Policy makers were aware that labor cost growth had been below rates that are likely to be consistent with inflation being sustainably at target.

“Over coming months, important additional evidence will be available to the Board on both inflation and the evolution of labour costs,” RBA Governor Philip Lowe said in a statement.

“The Board will assess this and other incoming information as it sets policy,” he said.

As of 7:52 GMT on Tuesday AUD/USD was gaining 1.16% to trade at 0.7630. Earlier in the trading session the major Forex pair climbed as high as 0.7639, which has been its strongest level since June 17th 2021 (0.7646).

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled -53.7 basis points (-0.537%) as of 7:15 GMT on Tuesday, up from -60.3 basis points on April 4th.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7527
R1 – 0.7572
R2 – 0.7601
R3 – 0.7645
R4 – 0.7689

S1 – 0.7498
S2 – 0.7454
S3 – 0.7425
S4 – 0.7396