AUD/USD Hits Three-Month Low as Traders Await RBA Decision

News Summary: The AUD/USD currency pair fell to a three-month low below 0.6500, stabilizing at 0.6483, following Federal Reserve Chair Jerome Powell‘s comments on potential future interest rate cuts and ahead of the Reserve Bank of Australia’s (RBA) policy announcement.

　　Lead: The Australian dollar (AUD) hit a three-month low against the U.S. dollar (USD), plunging below 0.6500 on Monday, February 5, 2024, as traders reacted to Fed Chair Jerome Powell's hawkish comments regarding future rate cuts during an announcement in the U.S., while also bracing for a dovish decision by the RBA due to recent inflation data.

Factors Influencing the Decline of AUD/USD

　　The AUD/USD experienced significant downward pressure, with the pair reaching its lowest point since November 2023. This decline has been largely attributed to recent statements from Jerome Powell, indicating a commitment from the Federal Reserve to achieve a 2% inflation target, along with the expectation of three interest rate cuts in 2024, excluding March.

　　As traders digested Powell's remarks, which emphasized the Fed's success in managing inflation, the greenback showed resilience, bolstered by a stronger-than-anticipated ISM services PMI report that climbed from 50.5 to 53.4—significantly above market expectations of 52. This positive news contributed to rising U.S. Treasury yields, with the 10-year benchmark note increasing by 13 basis points to 4.16%, enhancing the dollar's attractiveness relative to the Australian dollar.

Market Reaction and Current Positioning

　　By the end of the trading day on February 5, the AUD/USD stabilized at approximately 0.6483 after a considerable drop. Market participants remain vigilant, anticipating the upcoming meeting of the RBA, which is expected to maintain the current cash rate of 4.35% based on recent inflation readings. Analysts predict a dovish tone in the RBA's policy statement, particularly after softer-than-expected consumer price index (CPI) data indicated that further rate tightening may not be necessary.

　　“In light of the Q4 CPI data, we are confident that the RBA will not make any changes to the rate," commented analysts from ANZ. "We expect the RBA to maintain a tightening bias in its post-meeting statement while acknowledging the broader economic slowdown since the last board meeting coupled with a decrease in CPI.”

Technical Analysis and Future Outlook

　　From a technical perspective, the daily chart of the AUD/USD shows a downward bias. After breaking through the 100-day moving average at 0.6531, traders are watching for potential breaches below the February 5 low of 0.6468. If the selling pressure continues, analysts suggest that the pair could target the 0.6400 level followed by the November 10 low of 0.6338.

　　However, should buyer interest return, reclaiming the 0.6500 handle could set a trajectory towards the 100-day moving average at 0.6531 and the 200-day moving average at 0.6572.

RBAs Monetary Policy Framework

　　The RBA, responsible for regulating Australias monetary policy, aims to achieve price stability and full employment through the management of the cash rate. The objectives, as defined in the Reserve Bank Act of 1959, include maintaining inflation within a target range of 2-3% per annum and promoting the economic prosperity of the Australian people.

　　The monetary policy process involves extensive analysis of both domestic and international economic conditions. The RBA board meets eight times a year, with thorough preparatory work undertaken by bank staff to inform decision-making. Following each meeting, the bank publishes its policy decisions and the reasoning behind them, reinforcing transparency and accountability in its operations.

Conclusion

　　As the AUD/USD currency pair hovers near a three-month low, traders await the RBA's upcoming decision, which is likely to reflect a cautious approach given the latest inflation data. The interplay between the actions of the Federal Reserve and the RBA will be pivotal in shaping future currency fluctuations. Investors are advised to remain attentive to developments in both U.S. and Australian economic indicators as they navigate the currency landscape in the coming weeks.

Sources:

• [Reserve Bank of Australia - Monetary Policy]
• [FXStreet - AUD/USD Hits Three-Month Low]
• [RBA - Statement on Monetary Policy]
• [Central Banking - RBA Statement on Monetary Policy](https://www.centralbanking.com/central-banking/official-record/1528609/rba-statement-monetary-policy