Aussie Falls Despite Hawkish Shift by the RBA

JFD Brokers
8 min readNov 2, 2021


The Aussie fell sharply overnight, despite the RBA appearing more hawkish than previously. This was due to the market being already very hawkish heading into the decision, and thus, anything less than what was priced in, was destined to be a disappointment. Tonight, we have New Zealand’s employment report for Q3, where decent numbers could add credence to the RBNZ’s view for more rate hikes in the months to come.

RBA Fails to Match Market Expectations, NZ Jobs Data on the Agenda

The US dollar traded mixed against the other major currencies on Monday and during the Asian session Tuesday. It lost ground against CHF, JPY, and the EUR, while it eked out some gains versus AUD and GBP. The greenback was found relatively unchanged against NZD and CAD.

The fact that the main gainers were the traditional safe havens yen and franc, combined with the fact that none of the risk-linked currencies managed to record any gains, suggests that markets may have traded in a risk-off environment. However, looking at the performance in the equity world, we see that this was not the case, at least during the EU and US sessions. Major EU and US indices were a sea of green, with all three of Wall Street’s main averages hitting fresh record highs. However, market sentiment indeed softened during the Asian session today, with only South Korea’s KOSPI recording gains.

In our view, market sentiment continues to be relatively supported by signs that the latest supply shortages around the globe may have not affected the economic activity as many may have believed. That said, we expect a more careful and cautious trading today and tomorrow, as investors will be biting their nails in anticipation of the FOMC decision. The financial community broadly expects the Committee to announce the beginning of its tapering process, with a pace of USD 20bln per month. So, if officials indeed decide to proceed with the expected move, all the attention may fall on the accompanying statement and Chair Powell’s conference for inflation comments and any potential hints on interest rates. According to the Fed funds futures, market participants believe that policymakers will hit the hike button at some point in the middle of next year, so anything pointing to a later timing may come as a disappointment.

Now, speaking about central bank decisions, we already had one today, from the RBA. The Bank maintained its core policies — rates and QE — unchanged, but decided to discontinue the 10bps April 2024 yield target, something that was obvious, after they failed to defend that level last week. They also abandoned the forward guidance that interest rates are most likely to stay unchanged at least until 2024, and suggested that this could happen in 2023. “The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range,” they said, and added that “the central forecast is being for underlying inflation to be no higher than 2½ per cent at the end of 2023.” At the press conference following the decision, Governor Lowe confirmed the view, clearly saying that it is now plausible for a rate hike to be appropriate in 2023, but that doesn’t make it certain that interest rates will be raised before 2024. He also added that latest data and forecasts do not warrant an increase in the cash rate in 2022.

Remember that coming into the meeting, the financial world has been anticipating interest rates to hit 1.25% by the end of next year, and so, although more hawkish than previously, the RBA’s new guidance was still well behind that curve. In our view, that’s why the Aussie has fell sharply after the announcement. Remember that, yesterday, we already noted that market pricing appeared very aggressive, something that put the bar for a disappointment very low. According to the ASX interbank cash rate futures yield curve, market participants still expect some hikes next year, with the December yield now standing at 1.00%. In our view, this suggests that there is amble room for more downside in the Aussie. If central bank commentary and upcoming data confirm the view that no hikes are appropriate next year, those expectations could continue being pushed back, something that could result in more AUD selling.

With the RBNZ being among the most hawkish major central banks, we would expect AUD/NZD to continue underperforming. Remember that the RBNZ has already pushed the hike button and hinted that more hikes may be in the works for the months to come. So, in the AUD/NZD pair, which consists of two risk-linked currencies, any response to developments surrounding the broader market sentiment will be offset, and the main driver may be monetary policy divergence. Tonight, we get New Zealand’s employment report for Q3, and decent numbers could strengthen the case for more hikes by the RBNZ soon, thereby increasing the buying interest for the Kiwi.

AUD/USD — Technical Outlook

AUD/USD fell sharply on Monday, following the RBA decision, breaking below the upside support line drawn from the low of September 29th. In our view, this has discarded the bullish case, but it has yet to confirm a bearish reversal signal. Therefore, we will stay sidelined for now.

For us, a bearish reversal signal will be a clear dip below 0.7440, a support marked by the high of October 15th. This will confirm a forthcoming lower low on the 4-hour chart and may initially pave the way towards the low of October 18th, at 0.7380. If the bears are not willing to stop there, then a break lower could allow extensions towards the low of October 13th, at around 0.7330. Below that lies another potential support zone, at around 0.7290, from where the buyers jumped back into the action back in October 8th and 11th.

Now, in order to start examining the resumption of the prior uptrend, we would like to see a rebound back above 0.7555. This will confirm a forthcoming higher high on the daily chart and may see scope for extension towards the 0.7600 zone, marked by the high of July 6th, the break of which could pave the way towards the inside swing low of June 3rd, near the 0.7650 area.

AUD/NZD — Technical Outlook

AUD/NZD also tumbled after the RBA policy decision, and is now hovering slightly above the 1.0415/24 key support zone, marked by the lows of October 21st and 19th, respectively. Although the overnight slide suggests that the corrective wave between October 21st and 29th is now over, we prefer to wait for a dip below the key support zone of 1.0415/24 before we get confident on larger declines.

Such a move will confirm a forthcoming lower low on both the 4-hour and daily charts and may pave the way towards the 1.0382 area, marked by the inside swing high of September 10th. A break lower could see scope for extensions towards the key barrier of 1.0355, which provided resistance between September 20th and 23rd, where another break could set the stage for the low of September 24th, at 1.0315.

We will start assessing whether the bulls have gained the upper hand, only if we see a break above the high of October 29th, at 1.0528. Such a move will confirm a forthcoming higher high and may initially target the 1.0565 barrier, marked by the inside swing low of October 13th, the break of which could open the path towards the peak of the day before, at around 1.0612.

As for the Rest of Today’s Events

We already got Switzerland’s CPI, but as it is the case most of the times, the franc barely responded to this report. In a while, we get Eurozone’s final manufacturing PMI for October, which is once again expected to confirm its preliminary estimate. With regards to the energy market, we have the API weekly report on crude oil inventories, for which no forecast is available.

As for the speakers, we will get to hear from ECB Supervisory Board Chair Andrea Enria.


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