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Decline Ahead of Reserve Bank of Australia Meeting

10/31/2022 2:04 PM

Market participants are fixing long positions in the AUD/USD pair after reaching a strong resistance level of 0.6525 before the meeting of the Reserve Bank of Australia (RBA), which will be held tomorrow, November 1, at 05:30 (GMT+2).

Analysts predict an interest rate increase of 0.25% to 2.85%. In its latest economic forecasts, the regulator changed the targets for adjusting the value and reduced its pace. This is due to internal problems in the economy, low employment growth, as well as disruptions in the supply chains of goods. If the RBA decides to raise the interest rate by a higher value than 0.25%, this will strengthen the Australian dollar and probably return the AUD/USD pair to the level of 0.6525.

Negative data on the US economy, published on Friday, are able to support the quotes of the AUD/USD pair today. Thus, the basic price index of personal consumption expenditures for September in annual terms turned out to be worse than forecast, amounting to 5.1% against the expected 5.2%, and the index of unfinished sales in the real estate market in monthly terms amounted to -10.2%, which is much worse than the predicted -5.0% and the previous value at -1.9%. Against this background, expectations for an increase in the US Fed interest rate by 75 basis points decreased at the meeting on November 2. If a week ago, according to the CME FedWatch Tool, market participants expected an adjustment by the specified value with a probability of 95.5%, now 83.7% of traders believe in such a development of events.

Nevertheless, the US economy is still showing growth: gross domestic product (GDP) grew by 2.6% in Q3, so the strengthening of the AUD/USD pair will be more of a corrective nature.

The long-term trend is downward. After reaching the resistance level of 0.6525, the AUD/USD pair went into a correction, within which the instrument is declining with a target at 0.6375. If this mark is held, the growth is likely to continue, and the target will be the October maximum at 0.6550.

The medium-term trend changed to an uptrend last week. The key resistance 0.6367–0.6349 was broken, and the price consolidated higher. Also, market participants unsuccessfully tried to test the target zone 2 (0.6547–0.6529).

Now the price is correcting. A possible correction target is a test of key support for a new trend in the area of 0.6341–0.6323. If the area is reached, it will be possible to consider new purchases with a target at 0.6530.

Resistance levels: 0.6525, 0.6700. | Support levels: 0.6375, 0.6190.

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