Australia’s Central Bank Hikes Cash Rate

The AUD USD rose sharply overnight after the Reserve Bank ofAustraliaunexpectedly hiked its key benchmark cash rate by a quarter-point to 4.75%. Inits policy statement, the RBA cited inflation risks as the main reason behindthe hike. It was the first rate increase since May 2010.

The AUD USD rose sharply overnight after the Reserve Bank ofAustraliaunexpectedly hiked its key benchmark cash rate by a quarter-point to 4.75%. Inits policy statement, the RBA cited inflation risks as the main reason behindthe hike. It was the first rate increase since May 2010.

The news sent shorts scurrying for cover and encouragedaggressive buying that sent the Aussie closer to parity with the U.S. Dollar.Mortgage rates rose after the increase leading to speculation that pressure tohike further in the near-term would be reduced. This projection helped totemper the pace of the overnight gains, but did not attract any noticeableaggressive selling. It seems that parity is the natural resistance this morning.

Although the recent sharp rise to levels not seen for morethan 20 years helped to keep inflationary pressures in check, the RBA stillfelt it needed to act at this time in light of the sharp rise in commodityprices. Before the central bank’s move, market participants had put a lowprobability on a rate hike.

In its policy statement accompanying the RBA decision, Gov.Glenn Stevens said, “At today’s meeting, the board concluded that the balanceof risks had shifted to the point where an early, modest tightening of monetarypolicy was prudent.”

“Concerns about the possibility of a larger-than-expectedslowing in Chinese growth have lessened recently, and most commodity priceshave firmed, after a fall earlier in the year. The prices most important to Australiaremain at very high levels, with the result that the terms of trade are attheir highest since the early 1950s,” the RBA said.

Technically, the sharp rise in the Aussie challenged thenatural resistance level at 1.00. The actual overnight high took the marketslightly beyond the October 15 top at 1.0002. An uptrending Gann angle at .9750 is the nearest support and a new swingbottom has been formed at .9651.

With the RBA hiking rates and the Fed expected to ease againat its meeting on November 3, traders are expected to continue to press thelong side of the market. The key to sustaining the rally will be closing over1.00 then establishing support at this level.

James A. Hyerczyk has been actively involved in the futures markets since 1982. He has worked in various capacities within the futures industry from technical analyst to commodity trading advisor. Using W. D. Gann Theory as his core methodology, Mr. Hyerczyk incorporates combinations of pattern, price and time to develop his daily, weekly and monthly analysis. His firm, J.A.H. Research and Trading publishes The Forex Pattern Price Time Report... More

Disclainer: