AUD/USD regains 0.6700 as Reserve Bank of Australia flags more interest rate hikes

• AUD/USD snaps two-day downtrend on 0.25% rate hike from Reserve Bank of Australia, signals of further rate hikes.
• Firmer data from United States contrast with inflation expectations and probe US Dollar bulls.
• Hoes of China repealing its Zero-Covid policy also favor Australian Dollar bulls amid the sluggish session.
• Confirmation of rising wedge bearish technical pattern challenge AUD/USD upside.

AUD/USD justifies the Reserve Bank of Australia’s (RBA) hawkish hike as it prints the first daily gains in three around 0.6730 heading into Tuesday’s European session. In doing so, the Aussie pair also cheers the US Dollar’s retreat amid a sluggish day.

Reserve Bank of Australia pushes back policy doves to favor AUD/USD bulls

Reserve Bank of Australia matched market forecasts of announcing 25 basis points (bps) of a rate hike during its seventh consecutive increase in the benchmark rate to 3.10%. It’s worth noting, however, that the RBA hawks managed to keep the reins as the Rate Statement mentioned, “Board expects to increase interest rates further over the period ahead.”

Also read: RBA: Board expects to increase interest rates further over the period ahead

Additionally favoring the AUD/USD bulls could be the RBA statements suggesting, “Australian economy is continuing to grow solidly.” However, the policymaker’s rejection of hawkish moves teases the AUD/USD bears.

It should be noted that hopes of witnessing no rate hikes from early 2023 previously weighed on the AUD/USD prices. The RBA next meets on February 2023.

Recently, Australia's Treasurer Jim Chalmers signaled more hardships for Australian economy and tested the AUD/USD pair buyers.

China-linked optimism underpins Aussie Dollar bulls

Hopes that China would soon dial back its strict Zero-COVID policy seemed to have favored the market’s optimism, as well as the AUD/USD bulls. The reason could be linked to trade between Canberra and Beijing. Reuters quoted an anonymous source to report, “China is set to announce a further easing of some of the world's toughest COVID curbs as early as Wednesday.”

“Management of the disease may be downgraded as soon as January, to the less strict Category B from the current top-level Category A of infectious disease, the sources said on Monday, speaking on condition of anonymity,” said Reuters.

On early Tuesday, Reuters quotes Chinese state media to state that the Beijing Capital International Airport no longer requires a negative COVID-19 test result for entry to terminals, starting from Tuesday.

United State inflation expectations probe hawkish concerns over Federal Reserve

The recent economics from the United States and comments from the Federal Reserve (Fed) officials seemed to have renewed hawkish hopes from the Fed and weighed on the AUD/USD prices. However, the fresh inflation expectations from the US challenge the bearish bias.

US inflation expectations, as per the 10-year and 5-year breakeven inflation rates per the St. Louis Federal Reserve (FRED) data, retreat from a one-month high. The latest prints of the 5-year and 10-year inflation expectations portray a pullback from the one-month high to 2.46% and 2.39% respectively.

On Monday, the market’s hawkish hopes from the Fed bolstered after the US ISM Services PMI rose to 56.5 in November versus 53.1 market forecast and 54.4 previous readings whereas the Factory Orders also registered 1.0% growth compared to 0.7% expected and 0.3% prior. Further, S&P Global Composite PMI improved to 46.4 versus 46.3 initial estimations

It should be noted that the US Nonfarm Payrolls (NFP) surprised markets by rising to 263K versus 200K expected and an upwardly revised prior of 284K while the Unemployment Rate matched market forecasts and prior readings of 3.7% for November. Following the upbeat data, Chicago Fed President Charles Evans said, "We are probably going to have a slightly higher peak to Fed policy rate even as we slow pace of rate hikes.”

Moving on, positive sentiment surrounding China and the RBA’s latest hawkish move can please AUD/USD bulls. However, the technical analysis signals something else and makes it interesting together with a light calendar and an absence of Federal Reserve (Fed) talks ahead of December Federal Open Market Committee (FOMC).

AUD/USD technical analysis

Despite the AUD/USD pair’s latest rebound, the Aussie pair remains on the bear’s radar as it confirmed the rising wedge bearish chart pattern the previous day.

Also keeping the sellers hopeful are the bearish signals from the Moving Average Convergence and Divergence (MACD) indicator and the normal conditions suggesting a further extension of the downbeat moves by the Relative Strength Index (RSI) line, placed at 14.

Hence, the AUD/USD bears remain hopeful unless the quote stays below the stated wedge’s support line near 0.6855. Even if the quote crosses the 0.6740 hurdle, the upper line of the bearish chart pattern, close to 0.6855 at the latest, could challenge the upside moves.

Alternatively, the 200-bar Simple Moving Average (SMA) level surrounding 0.6580 appears the immediate support for the pair bears to watch ahead of an upward-sloping support line from October 13, around 0.6415 by the press time.

AUD/USD: Four-hour chart

Trend: Further downside expected