The Australian dollar has started to turn lower against the US dollar, despite the fact that the Australian central bank following through and enforcing its largest interest rate increase this year.
Earlier this morning the Reserve Bank of Australia beat market expectations by lifting the benchmark interest rate by 50 basis points to 0.85%. The RBA Rate Statement was largely focused on inflation.
RBA Governor Phillip Lowe said “inflation in Australia has increased significantly. Committed to doing what is necessary to ensure that inflation in Australia returns to target over time.”
Lowe added “the size and timing of future interest rate increases will be guided by the incoming data and the board’s assessment of the outlook for inflation and the labour market.”
In terms of the AUDUSD pair, the decision has done very little for direction. While the AUDUSD struggles below 0.7280, very little has changed regarding its overall downtrend.
According to the ActivTrader market sentiment tool some 60 percent of traders are bullish towards the AUDUSD pair, which to me still suggest further AUDUSD losses in the short-term if we apply a contrarian mentality.
In order for the AUDUSD to really build sustained upside momentum we probably need to see a stronger bearish sentiment bias towards the Aussie emerging. As things stand, the bullish sentiment should see the AUDUSD continue to push lower.
AUDUSD Short-Term Technical Analysis
The four-hour time frame shows that the AUDUSD pair has formed a new higher high. This is bullish in the short-term, however, the price does need to hold above the 0.7280 for further breakthroughs.
Furthermore, the AUDUSD pair could test back towards the yearly low just to confirm that a higher low is in play. This means we could see a drop towards the 0.6900 in the short-term.
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AUDUSD Medium-Term Technical Analysis
Looking at the daily time chart the AUDUSD pair is currently working its way through the neckline of a head and shoulders pattern. It does look like a right-hand shoulder is now forming.
According to the size of this price pattern, which is typically bearish, the AUDUSD pair could stage a staggering 700-point price drop if the 0.7000 level is broken with conviction over the medium-term.
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