AUD/USD jumps back towards 0.7250 on RBA’s surprise 50 bps rate hike

• AUD/USD rallied 60 pips as RBA surprised traders with higher-than-expected rate lift.
• RBA inflates benchmark interest rate to 0.85% from 0.35% during the latest meeting.
• Sour sentiment, firmer yields challenge upside momentum with eyes on US inflation.
• Second-tier US data, risk catalysts may offer intermediate directions.

AUD/USD portrays a stellar 60-pip upside reaction to the RBA’s latest rate surprise during early Tuesday morning in Europe. In doing so, the Aussie pair reverses the early-day losses with 0.60% intraday gains around 0.7240 by the press time.

The Reserve Bank of Australia (RBA) crossed wide market expectations by lifting the benchmark interest rate by 50 basis points (bps) to 0.85%. The RBA Rate Statement, however, appears less lucrative for the AUD/USD bulls and seemed to have probed the quote after the initial knee-jerk reaction to the RBA’s rate hike.

Also read: RBA: 50 bps hike will assist with the return of inflation to target over time

Earlier in the day, the downbeat sentiment in the market weighed on the risk-barometer pair. Global markets remain depressed during early Tuesday as traders struggle for clear directions, as well as fear a heavier/longer interest rate increase by the Fed. Also challenging the risk appetite could be a cautious mood ahead of the European Central Bank’s (ECB) monetary policy meeting and the US Consumer Price Index (CPI) data.

Alternatively, China’s hopes of faster economic recovery challenge the AUD/USD bears, considering Australia’s strong trade ties with the dragon nation. China Securities Journal (CSJ) praised the country’s virus control and policy stimulus while expecting economic improvement in the second half (H2) of 2022. Previously, Beijing’s ability to overcome the pandemic and citing preparations to recover from the economic loss with faster unlocks joined US President Joe Biden’s likely easy stand for China, as far as showing readiness to remove Trump-era tariffs, seemed to have favored sentiment.

Not only the risk-off mood and immediate reaction to the RBA’s rate hike but a sudden shift in favor of the bears in the options market also kept the pair sellers hopeful before the RBA. That said, one-month risk reversal (RR) on the AUD/USD pair, a spread between the calls and puts, snapped a three-day uptrend while flashing -0.090 figures at the latest, per Reuters’ data on the options market. In doing so, the Aussie RR also challenge the three-week rally before the previous day’s downbeat figure.

While portraying the mood, S&P 500 Futures print nearly half a percent daily loss around 4,100 whereas S&P/ASX 200 index, the leading Aussie equity gauge, drops 1.63% to 7,086 at the latest. It’s worth noting that the share price index broke fortnight-long support as sellers attack a one-week low. Also, the US 10-year Treasury yields rise for the seventh consecutive day to 3.045%, up 05 basis points (bps) by the press time.

Having witnessed the initial market reaction to the RBA’s move, AUD/USD traders will keep their eyes on the qualitative catalysts, amid a lack of major data/events ahead of Friday’s inflation data from the US and China. However, the US Goods and Services Trade Balance for the said month, forecast at $-89.5B compared to $-109.8B previous readouts, can entertain intraday traders.

Technical analysis

A clear downside break of the three-week-old ascending trend line, around 0.7240 by the press time, directs AUD/USD bears towards the 20-DMA support near 0.7085.