- AUD/USD sold-off into RBA’s dovishness despite opening doors to rate hikes.
- Pre-Fed anxiety weighs on global stocks, souring the market mood.
- A broadly subdued US dollar keeps the aussie’s downside cushioned.
AUD/USD is consolidating the steep losses near weekly lows of 0.7470, as the sentiment around the Australian dollar was hurt by the Reserve Bank of Australia (RBA) monetary policy decision.
Succumbing to the global policy unwinding pressure and rising inflation fears, the Australian central bank abandoned its 2024 April bond yield target at 0.1% while keeping the Official Cash Rate (OCR) at a record low of 0.1%.
Although the decision may appear hawkish, the central bank Governor Phillip Lowe tried his best to keep the doves happy. Lowe said, it was still “likely to take some time” for inflation to sustainably return to its target, which knocked off the short-term Australian government bond yields, reflective of the easing bets for aggressive tightening.
The aussie dollar bore the brunt of the falling short-term yields and dropped sharply against the US dollar. The divergent monetary policy outlooks between the Fed and RBA is back in play, exerting downward pressure on the major.
Meanwhile, the US dollar licks its wounds after Monday’s decline, as investors reposition their USD bets ahead of the critical US Federal Reserve (Fed) policy meeting, commencing later on Tuesday. The Fed is widely expected to announce tapering at its November meeting and could hint at sooner than expected rate hikes to counter the inflationary risks.
In the meantime, investors will continue weighing in the RBA decision while closely following the risk trends amid a data-light US docket.
