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Australian Dollar Outlook: RBA Expected to Hike 25bps, Focus on Policy Path for AUD

By Justin Mcqueen

18:35, 5 December 2022

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In this article:
AUD/JPY
AUD/JPY
92.126 USD
-0.182 -0.200%
AUD/USD
AUD/USD
0.70767 USD
-0.00328 -0.460%

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AUDUSD Outlook
AUDUSD Outlook - Photo: Capital.com. Source GettyImages

RBA Expected to Hike 25bps But Policy Path Matters for AUD

The RBA is widely expected to hike the cash rate target by another 25bps to 3.1% with money market pricing around 65%. However, much of the focus for the Aussie will centre around the tone of the statement and whether there is a shift in language that could imply a pause in the hiking cycle. 

Since the prior meeting, economic data, on the whole, has been mixed. While the jobs data continues to show a tight labour market with Q3 wage price growth also accelerating at the fastest pace in a decade. Retail sales unexpectedly fell and the monthly inflation print missed expectations at 6.9% (vs 7.4% expected). As such, this has prompted markets to price in a 30-35% probability of no rate hike at the December meeting. Although, it is important to highlight that inflation remains far too high relative to the central bank's target and thus a rate hike is the most likely outcome. 

In turn, while a 25bps hike may see a knee-jerk higher in the Aussie, whether the move is sustained depends on the accompanying statement. What’s more, with the RBA being one of the first banks to slow the pace of rate hikes, there is a downside risk that they provide a dovish rate hike and grow even more cautious on the outlook. Should this be the case recession trades such as bearish AUD/JPY may be the trades for a weaker AUD outlook. According to the options market, AUD/JPY implied volatility suggests a move (higher or lower) of circa 60pips.

GBP/USD

1.24 Price
-0.080% 1D Chg, %
Long position overnight fee -0.0039%
Short position overnight fee 0.0004%
Overnight fee time 22:00 (UTC)
Spread 0.00013

EUR/USD

1.09 Price
+0.250% 1D Chg, %
Long position overnight fee -0.0082%
Short position overnight fee 0.0025%
Overnight fee time 22:00 (UTC)
Spread 0.00006

AUD/USD

0.71 Price
-0.460% 1D Chg, %
Long position overnight fee -0.0056%
Short position overnight fee 0.0010%
Overnight fee time 22:00 (UTC)
Spread 0.00006

GBP/JPY

161.23 Price
+0.190% 1D Chg, %
Long position overnight fee 0.0000%
Short position overnight fee -0.0001%
Overnight fee time 22:00 (UTC)
Spread 0.029

AUD/USD techs

As shown in the chart below, AUD/USD is posting a bearish key day reversal, typically a sign of topside exhaustion. This is further highlighted by the lower highs on the RSI. Support is situated at 0.6560 (200 hour MA), while resistance resides at 0.6780-0.6800. 

AUD/USD chart: 4-hour time frame

AUD/USD 4H ChartAUD/USD 4H Chart - Photo. Capital.com. Source: Tradingview

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
Capital Com is an execution-only service provider. The material provided on this website is for information purposes only and should not be understood as an investment advice. Any opinion that may be provided on this page does not constitute a recommendation by Capital Com or its agents. We do not make any representations or warranty on the accuracy or completeness of the information that is provided on this page. If you rely on the information on this page then you do so entirely on your own risk.

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