AUDUSD slides despite RBA rate hike as sellers hold control

Today, the Reserve Bank of Australia raised its cash rate target by 25 basis points to 4.60%, in line with expectations. The central bank described inflation as still too high and left the door open for further tightening if needed. RBA

A rate hike might normally lift the Australian dollar. Instead, AUDUSD extended its decline from the September 9 peak of 0.7237. The drop was partly driven by US dollar strength, as US yields rose on expectations of a more hawkish Fed. The technical outlook has also turned progressively more negative.

Sellers leaned against the 200-day moving average

AUDUSD initially rebounded from the 100-day moving average on September 17, but broke below it with force last Wednesday. On Thursday it closed under the 200-day moving average, though buyers appeared near the 61.8% retracement at 0.7007.

Over the following sessions the pair traded on both sides of the 200-day moving average. On Tuesday, sellers resisted that level, now around 0.70256, near the Asia-Pacific session high. When the RBA decision failed to trigger a sustained rally, they pushed the price to its lowest level since late July.

The decline reached 0.6979, just above the swing zone from 0.69619 to 0.69778. Price has corrected modestly higher, but sellers have so far been willing to sell against the 0.7007 retracement.

This gives sellers the upper hand. Staying below 0.7007 and away from the 200-day moving average keeps the downside bias in place. Buyers need to climb above both levels and stay there to start disappointing sellers.

Key technical levels

The current price is 0.69902, under the 61.8% retracement. On the downside, a break below 0.69619 would push through the swing area, opening the path to 0.69205 and then 0.69056. The late June low at 0.68655 is a more distant target if bearish momentum continues.

On the upside, buyers first need to reclaim 0.7007 and the declining 100-hour moving average at 0.70206. That would bring the 200-day moving average at 0.70256 back into play, followed by 0.70515. The 100-day and 200-hour moving averages both sit around 0.70647; moving above that pair would add more credibility to a bullish shift.

Trading lesson: Watch the reaction to the news

A fully anticipated rate hike does not guarantee a currency will rise. Traders may have already priced in the decision, while moves in the other currency—in this case the US dollar—can have a greater effect on the pair.

The useful question after a news release is: Did the price reclaim a level that changes the technical bias? On Tuesday, AUDUSD could not sustain a move above the 200-day moving average. The subsequent break to a new low showed that sellers were still in control. For buyers, the levels above provide a clear way to judge whether that control is starting to slip.