AUD/USD scaled a fresh two-month peak on Tuesday following the release of the latest Reserve Bank of Australia’s policy meeting minutes.
It showed that RBA policy makers remained open to either pause the cycle of tightening, or to go back to larger rate hikes, depending on incoming macro data.
RBA Deputy Governor Michelle Bullock has recently said that the bank’s cash rate would be raised further, but an eventual pause in rate hiking was getting closer.
Earlier this month, the RBA raised its cash rate by 25 basis points to 2.85%, in line with market expectations. It has been the seventh consecutive rate hike, which took borrowing costs to a level unseen since April 2013.
Meanwhile, the US Dollar Index was losing 0.72% on the day to 160.174, while erasing gains from Monday. Last week, the index plunged 4% following the latest US CPI data, which showed annual inflation had slowed for a fourth month to 7.7% in October. It stoked investor speculation that a peak in interest rates could be near.
“The U.S. dollar is trying to form a post-CPI base, with Waller doing his best but the more influential Brainard somewhat less hawkish,” Sean Callow, a senior currency strategist at Westpac, was quoted as saying by Reuters.
For the DXY, “the September highs above 114 are looking increasingly like the cyclical peak, but we expect support to start to emerge into the 105 area,” Callow added.
Markets are now pricing in an 89% chance that the Federal Reserve will slow the pace of rate hikes to 50 basis points at its upcoming policy meeting on December 14th.
As of 9:41 GMT on Tuesday AUD/USD was gaining 0.70% to trade at 0.6746. Earlier today, the major Forex pair went up as high as 0.6763, which has been its strongest level since September 15th (0.6770).
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 -119.5 basis points as of 9:15 GMT on Tuesday, up from -124.0 basis points on November 14th.
Daily Pivot Levels (traditional method of calculation)
Central Pivot – 0.6696
R1 – 0.6728
R2 – 0.6756
R3 – 0.6788
R4 – 0.6820
S1 – 0.6667
S2 – 0.6635
S3 – 0.6607
S4 – 0.6579
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