AUD/USD pullback extends, pair now nearly 200 pips lower versus Tuesday’s post-hawkish RBA highs in 0.7660s

• AUD/USD has continued to pull lower despite the recent hawkish shift in RBA tightening expectations and is now around 0.7475.
• That’s a near 200 pip reversal from Tuesday’s highs in the 0.7660s.
• AUD/USD has been weighed by falling commodity and equity prices plus hawkish Fed vibes (policymaker comments plus Wednesday’s minutes).

A significant hawkish shift in the market’s expectations for RBA policy since Tuesday’s policy announcement where the reference to “patience” regarding rate hikes was dropped has not been able to prevent AUD/USD from continuing its reversal back from multi-month highs. Having been as high as the 0.7660s earlier in the week in the immediate hawkish RBA aftermath, the pair has now reversed nearly 200 pips lower and at current levels in the 0.7475 area, trading with losses of about 0.4% on the day. That means the pair now trades lower by about 0.3% on the week.

The reversal in AUD/USD fortunes comes as a pullback in broader commodity prices and global equities weigh on the commodity and risk-sensitive Australian dollar, whilst hawkish rhetoric from Fed policymakers/in the recently released minutes spurs a buoyant US dollar. Traders will now be eyeing the next key support zone in the 0.7440-50s area. So long as the recent pullback in commodities/equities doesn’t worsen, some might be inclined to buy the dip.

Indeed, the RBA now seems to be only two months away from implementing its first-rate hike, if the calls from the four largest Australian banks are anything to go by. But analysts don’t expect the RBA to hike interest rates anything like as aggressively as the Fed (Westpac forecast 125 bps of tightening in 2022). This may be a key reason why Tuesday’s post-RBA gains didn’t last and could continue to weigh on AUD/USD in the months ahead.