AUD/USD drops below 0.6600 following RBA rate decision

AUD/USD drops below 0.6600 following RBA rate decision
  • AUD/USD loses traction near 0.6575 following the Reserve Bank of Australia (RBA) monetary policy meeting.
  • The RBA decided to hold the rate unchanged at 4.35%, as widely expected.
  • The market has priced in 97% odds that the Fed will keep the rate unchanged at a range of 5.25% to 5.50% in the next meeting.
  • Investors will monitor the US ISM Services PMI, due later on Tuesday.

The AUD/USD pair loses ground below the 0.6600 psychological round mark during the Asian trading hours on Tuesday. The pair faces some selling pressure after the Reserve Bank of Australia’s (RBA) monetary policy meeting. The pair currently trades near 0.6575, down 0.70% for the day.

The Reserve Bank of Australia (RBA) board members decided to maintain the interest rate unchanged at 4.35% at its December monetary policy meeting on Tuesday. The RBA’s Governor Michele Bullock said whether additional monetary policy tightening is necessary to ensure that inflation returns to target would be determined by the data and the developing risk assessment.

Bullock further stated that holding the cash rate steady at this meeting would give the RBA time to assess the impact of the interest rate rises on demand, inflation, and the labor market.

On the USD’s front, the Federal Reserve (Fed) Chair Jerome Powell reinforced expectations that the central bank will no longer hike additional rates in its December meeting and may begin cutting rates by March 2024. According to the CME FedWatch Tool, the market has priced in 97% odds that Fed will keep the rate unchanged at a range of 5.25% to 5.50% in the next meeting and there is a more than 50% chance that Fed will trim rates by 25 basis points (bps) as soon as March of next year, up from around 21% one week ago. This, in turn, might weigh on the US Dollar and act as a tailwind for the AUD/USD pair.

Market participants will shift their focus to the US ISM Services PMI, due later on Tuesday. Later this week, the Australian Gross Domestic Product for the third quarter (Q3) will be released, which is forecasted to remain steady at 0.40%. These figures could trigger the volatility in the market and give a clear direction to the AUD/USD pair.

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