AUD/USD drops below 0.6800 despite RBA’s rate hike, firmer sentiment

• AUD/USD stays pressured around intraday low, reverses early-day gains.
• RBA meets market expectations as it announces the fourth consecutive rate hike of 50 bps.
• Stimulus hopes probe bears, RBA Rate Statement weigh on prices.
• US ISM Services PMI for August, Aussie Q2 GDP become important for fresh clues.

AUD/USD holds lower ground near the intraday low of 0.6783 even as the Reserve Bank of Australia (RBA) increased the benchmark rates early Tuesday. In doing so, the Aussie pair also ignores the market’s firmer sentiment, as well as a pullback in the US Dollar Index (DXY).

RBA announced the consecutive fourth increase in the benchmark rate worth 50 basis points, to 2.35%, while matching market forecasts. The RBA statement also mentioned that the board is committed to doing what is necessary to ensure inflation returns to target. However, the market players failed to buy the Australian dollar as the recently announced rate hike seems widely anticipated and already priced in. Also likely to challenge the AUD/USD buyers could be the sluggish moves in Aussie equity markets and fears of cooling household spending in Australia.

Also read: RBA: Board is committed to doing what is necessary to ensure inflation returns to target

That said, the US 10-year Treasury yields rise 5.2 basis points (bps) to 3.25% by the press time. In doing so, the US benchmark bond coupons reverse Friday’s losses. Also portraying the risk-on mood could be the 0.50% intraday gains of the S&P 500 Futures, as well as a pullback in the US Dollar Index (DXY) from a 20-year high marked the previous day.

The market’s firmer could be linked to the chatters surrounding more aid packages to propel economic recovery seem to have favored the optimists during the full markets. That said, the incoming UK PM Liz Truss is up for a £130 billion energy plan while the People’s Bank of China (PBOC) cuts the Reserve Requirement Ratio (RRR). Further, politicians from Germany/Eurozone are all in to battle with the recession woes with a heavy push to defend energy companies and stock for winters.

It should be noted that the easing covid woes in China also should have favored the AUD/USD buyers but did not. Talking about the covid conditions, per Reuters, “China's Shenzhen city eased a COVID-19 lockdown on Monday, while Chengdu - the capital of the southwestern province of Sichuan - extended its lockdown for most people to Wednesday.”

Elsewhere, the CME’s FedWatch Tool suggests an increase in the hawkish Fed bets, from 57% on Monday to 64% at the latest, concerning the 75 bps rate hike in September that seems to favor the AUD/USD bears.

Additionally, anxiety ahead of the key US Services PMI for August, expected 55.5 versus 56.7 prior, could also be held responsible for the AUD/USD pair’s weakness. Other than the US activity data, the Aussie Gross Domestic Product (GDP) for the second quarter (Q2), expected 1.0% QoQ versus 0.8% prior, will also be important for fresh impulse.

Technical analysis

Unless crossing the 0.6900 resistance confluence including the 50-DMA and the 23.6% Fibonacci retracement of the April-July downside, remains bearish inside a two-month-old horizontal support area that restricts short-term declines of the Aussie pair to around 0.6765-60.