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Author: Sir Amar – Technical Analyst

The US dollar fell in early European trade today while the Australian dollar fell, despite the country’s Reserve Bank announcing a half-point rate hike. The dollar index, which tracks the dollar against a basket of six other currencies, fell 0.1% to 104.892 after rallying as high as 105.64 on Friday, close to a two-decade high of 105.79 hits in mid-June. Risk appetite increased on Tuesday, with stock markets generally rising, and this has weighed on the safe-haven dollar. However, losses are limited given a sharp rebound in the 10-year Treasury yield, which last traded at 2.937% from the lowest since May at 2.791% on Friday.

The Australian dollar moved lower after the RBA further confirmed its alliance with other global central banks on a robust tightening regime. The bank raised interest rates by 50 basis points from 0.85% to 1.35%. This is the first time the bank has hiked rates by 50 basis points in consecutive sessions. The statement ahead of the decision highlighted issues with global supply chains and they expect inflation to peak later this year and then return to its target in 2024.

Elsewhere, AUD/USD fell 0.1% to 0.6858 after the Reserve Bank of Australia hiked interest rates by 50 basis points. While this move was widely expected, the US Federal Reserve’s 75 basis point hike last month had fuelled speculation that Australia’s central bank could be more aggressive in tightening. Despite this, the Australian dollar has largely decoupled from monetary policy and near-term interest rate dynamics, although it remains primarily driven by USD moves and the global risk environment. If the CPI is above 7% in July, the RBA could continue a huge rally at its next meeting on August 2nd.