Head and shoulders pattern forms amid hawkish RBA

The AUD/USD exchange rate continued its bearish trend on Tuesday after the latest interest rate decision by the Reserve Bank of Australia (RBA). The pair slipped to a low of 0.6771, which was the lowest level since July 15 of this year. It has fallen by 5% from its highest point in August.

RBA interest rate decision

The RBA concluded its two-day monetary policy meeting on Tuesday morning. As was widely expected, the bank decided to hike interest rates by 0.50% to 2.35%. That was the fourth meeting in which the central bank decided to hike interest rates.

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In a statement, the central bank governor said that the rate hike was necessary as inflation continues rising. The bank expects that Australia’s inflation will keep rising and average about 7% this year and then retreat to 4% in 2023 and 3% in 2024. It, however, cautioned that predicting inflation was a bit difficult.

The AUD/USD forex price declined because of three main reasons. First, most analysts were expecting that the RBA will deliver such a hike. In most cases, an asset tends to move in the opposite direction after a major announcement that was expected.

Second, the Australian dollar declined because of the strong US dollar. The dollar index continued rallying as investors focus on the rising global risks and the hawkish Federal Reserve. Analysts believe that the Fed has a basis for more tightening in the coming months.

Third, the AUD/USD price crashed because of the falling industrial metal prices. The closely watched S&P GSCI index of industrial metals has dropped by 10% from its highest point in August. Some of the top metals that Australia sells like copper and iron ire have all shed more than a quarter. 

The next catalyst for the AUDUSD price will be the upcoming Australia GDP data that are scheduled for Wednesday.

AUD/USD forecast

The 4H chart shows that an extremely bearish pattern has formed in the past few weeks. It has formed a head and shoulders pattern, which signals that an asset’s price will continue falling. It managed to move below the key support at 0.6870 last week. This price was the neckline of the head and shoulders pattern.

The AUD/USD pair has moved below the 25-day and 50-day moving averages while the Awesome Oscillator has moved below the neutral level. Therefore, the pair will likely continue falling as sellers target the key support at 0.6700.

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