AUD/USD – Back in decline as the Reserve Bank of Australia remains on hold

• RBA leaves the cash rate at 4.1% but signals more tightening may be needed
• China Caixin services PMI unexpectedly falls to 51.8
• AUDUSD tumbles again to test recent support

The Australian dollar fell further this morning despite the RBA holding interest rates steady and warning that further tightening may be necessary.

The central bank warned that while inflation is declining, a strong labor market and economy remain a risk. What’s more, persistent services price inflation which is being seen in other countries could be another potential upside risk in Australia in the future.

Markets aren’t buying the hawkish warning though and continue to price in a 70% chance of no further increases from the RBA, with cuts then likely to start late next year.

This will almost certainly change repeatedly over the months ahead but as things stand, clear progress is being made on inflation and the central bank has no desire to needlessly crash the economy.

AUDUSD tumbles after Chinese data and RBA decision

The Aussie dollar continued to decline despite this, probably driven initially by the weaker Chinese Caixin services PMI reading but the technicals weren’t looking too good either.

AUDUSD Daily

Source – OANDA on Trading View

In fact, they haven’t for a number of weeks, since the pair broke below the neckline of a double top pattern. In this case, the top fell around 0.69 and the neckline around 0.66.

The first thing worth mentioning is this isn’t a perfect double top as it doesn’t follow a prolonged move higher in the pair. That said, it has trended lower since and the move below the neckline isn’t far from the size of the pattern itself, as the textbooks indicate can happen.

More recently, the pair has traded between much tighter support and resistance – 0.6370 and 0.6520, respectively – and that still broadly remains the case, although today’s trading has been rather bearish and that support is being significantly tested.

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