Is it safe to buy the Aussie dip?

The AUD/USD price had its worst day since July as investors reflected on the latest interest rate decision by the Reserve Bank of Australia (RBA). The pair retreated to a low of 0.6916, which was about 1.6% below the highest level this week.

RBA interest rate decision

The Australian dollar retreated sharply after the RBA concluded its two-day monetary policy meeting. In it, the committee decided to do what most analysts were expecting. It raised the Official Cash Rate (OCR) by 0.50% in its bid to fight the soaring inflation.

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The RBA has now made four interest rate hikes, bringing the OCR to 1.85%. This makes it the most hawkish it has been in more than 30 years. 

The AUD/USD forex pair dropped for two main reasons after the RBA decision. First, the bank warned that the economy will have a significant slowdown in the coming months. It expects the Australian economy will grow by about 3.25% this year, which was lower than the previous estimate of 4.25%. The bank also sees the GDP expanding by 1.75% in 2023.

The RBA hiked interest rates in a bid to counter the soaring inflation. Data published last week showed that inflation surged to 5.1% in the first quarter. The RBA expects that it will peak at 7.5% this year. The statement added:

“The increase in interest rates over recent months has been required to bring inflation back to [the 2% to 3%] target and to create a more sustainable balance of demand and supply in the Australian economy.”

Second, the AUD/USD pair dropped because of the strong performance of the US dollar. The dollar index rose by 0.50% as tensions between China and the US rose. China is protesting Nancy Pelosi’s trip to Taiwan.

AUD/USD forecast

The AUD/USD pair has been in a strong bullish trend in the past few weeks. As it rose, the pair formed an ascending channel shown in green. It then made a strong bearish breakout after the latest RBA decision. 

The pair moved below the 25-day and 50-day moving averages while the Relative Strength Index (RSI) dropped below the oversold level. Therefore, the pair will likely keep falling as sellers target the next key support level at 0.6850. 

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