Aussie extends losses ahead of RBA meeting

AUD/USD is down for a third straight day. The Australian dollar is trading at 0.6395, down 0.24%.

Will RBA deliver a 0.50% hike?

The RBA kicks off a busy week of central bank decisions when it meets on Tuesday. This will be followed by the Federal Reserve on Wednesday and the Bank of England on Thursday.

The RBA has delivered a steep rate-tightening cycle this year and the upcoming meeting will be live, as it remains unclear what the RBA has in store for the markets. The markets have priced in a second-straight 25-basis point hike, which would bring the cash rate to 2.85%, its highest level since April 2013. There is, however, a 20% chance that the RBA will hike by a steep 50 basis points, given that the Bank’s focus is on curbing inflation and the battle remains far from over. Headline inflation jumped to 7.3%, up from 6.1% in Q2, while core inflation hit 6.1%, up from 4.9%. The RBA expects headline inflation to peak at 7.5%, but other views have inflation rising as high as 8.0%.

RBA Governor Lowe has caught the markets wrong-footed before – the 50 bp move in June was larger than expected, and the 25 bp in October was a surprise dovish pivot. This makes it tricky to predict the extent of the rate hike on Tuesday –  the markets are leaning heavily towards a 25 bp increase, but a 50 bp move should not be discounted.

For the Federal Reserve, inflation is also a key concern. The Fed’s preferred inflation gauge, the PCE core index, rose to 5.1% in September, up from 4.9% a month earlier. That cements a 75 bp rate hike on Wednesday, even though there has been talk of the Fed easing up due to concerns about the economic outlook.

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AUD/USD Technical

• AUD/USD is testing support at 0.6403. The next support level is 0.6283
• There is resistance at 0.6532 and 0.6652

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