Market update: a look at the Aussie, AUD/USD, GBP/AUD price action setups after RBA minutes

Australian dollar fundamental backdrop

The Reserve Bank of Australia (RBA) recently published the minutes from its latest meeting, during which the central bank implemented a 25 basis points hike. Surprisingly, the Australian dollar experienced a sell-off in the wake of the rate increase, a development that, upon scrutinizing the minutes, proves somewhat unexpected. The disclosed minutes highlighted that the hike aimed to mitigate the risk of a "larger monetary policy response," given the persistently high inflation and robust economy.

Inflation risks amidst peaks and challenges

Furthermore, the minutes underscored that inflation risks continue to lean towards the upside, despite recent remarks by RBA Governor Michele Bullock indicating that inflation may have peaked. However, the Governor acknowledged that bringing inflation within the target range will present an ongoing challenge for the economy and could extend over a two-year period.

This aligns with my consistent belief that inflation seldom recedes sufficiently, with certain items retaining elevated prices while others may become more affordable. I anticipate that some of the recent global inflationary pressures may become entrenched, making the forthcoming months particularly intriguing for central banks.

Resilient Australian dollar

Despite the initial sell-off following the rate hike, the Australian dollar has maintained relative strength. I anticipate this trend to persist, as hinted by Governor Bullock, attributing the economy's resilience to robust demand. According to Governor Bullock, the labor market is expected to remain robust, which, in turn, could sustain demand and pose upside risks to inflation.

Interest rate dynamics: RBA's strategic positioning

Considering an interest rate comparison, the RBA remains well-positioned to implement another rate hike if deemed necessary. As illustrated in the chart below, the RBA currently enjoys the lowest rates compared to the UK, EU, and the United States.

RBA's rates compared to the UK, EU, and the United States chart

We did have some data a short while ago, as well with the release of the Judo Bank Manufacturing and Services PMI Flash numbers. Manufacturing and Services both declined slightly from the October print, but seemed to have little immediate impact on the Australian dollar.

Economic Calender

AUD/USD technical analysis

AUD/USD has been on an impressive rally since the central bank raised rates; and we had an initial selloff to retest support at the 0.6350 mark. Since then, AUD/USD has exploded, printing a fresh higher and keeping the overall bullish structure going.

AUD/USD also remains with a long-term descending channel but may find it hard to push on from here without some form of retracement. Resistance has been provided by the 200-day MA at the 0.6600 level. The issue for sellers is that there remains a lot of downside support as well, which could hamper a sustained move lower. It would also appear that a golden cross pattern may be developing as the 20-day MA eyes a cross above the 100-day MA, which would be a nod to potential bullish continuation.

Personally, I would prefer some form of retracement here before potentially joining the trend, as we have just printed a higher high. I will be keeping a close eye on support at 0.6484, 0.6440 and 0.6400 for potential long opportunities. A break and daily candle close below the 0.6350 mark will be needed for a change in structure, and this would then invalidate the bullish setup.

Key levels to keep an eye on

Support levels:

• 0.6484
• 0.6445
• 0.6400

Resistance levels:

• 0.6594
• 0.6650
• 0.6691

AUD/USD daily chart

GBP/AUD technical analysis

GBP/AUD has been rangebound for the best part of two months. For many pairs a 400-pip range is quite large, but in the case of an exotic like GBP/AUD it is not. As things stand, there is a clearly defined range and some key areas of support and resistance which may be used for potential opportunities in the interim. Support on the downside rests at the 1.9000 handle, and just below at the 1.8950 mark. A move lower also brings the possibility that we may spike slightly lower to tap into the 200-day MA at 1.8911.

Key levels that may provide resistance for potential shorts will be the 1.9211 area and then the 1.9278 before the range high at 1.9338 comes into focus. All these levels may provide an opportunity for potential shorts, as even a breakout will only serve to improve the risk to reward ratio.

GBP/AUD daily chart

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