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Momentum for Further Gains Lacks Sustainability, and Downward Path Presents Least Risk
Summary:
The Reserve Bank of Australia kept its cash rate unchanged at 3.60%, with Governor Bullock signaling no imminent rate cuts and expressing openness to raising rates in 2026.
Trading
0.66442
ENTRY
0.65200
TGT
0.67500
SL
0.66459 -0.00061 -0.09%
0
Point
Flat
0.65200
TGT
CLOSING
0.66442
ENTRY
0.67500
SL
Fundamentals
The recent strong upward momentum of the AUDUSD may be coming to an end, with the currency pair currently in a consolidation phase. Earlier, the asset had reached its highest level since September 18 and entered a consolidation phase during Wednesday's trading session, with mixed gains and losses.
The Reserve Bank of Australia (RBA) kept its cash rate unchanged at 3.60% on Tuesday, a move fully priced in by the market. However, Governor Michele Bullock struck a more hawkish tone than anticipated, dismissing market speculation about easing policies in early 2026. She stated: “Given the underlying momentum of the current economy... it appears unnecessary to cut rates further.” She further added that she does not foresee any rate cuts “in the foreseeable future.”
Bullock confirmed that the board did not actively discuss raising interest rates as a policy option today, but she emphasized that members spent “considerable time” examining the circumstances that might compel them to hike rates next year. The discussion focused on the persistence of inflation and the extent to which the economy would need to cool before the board could be confident that price pressures had returned to target levels.
When asked about the possibility of a rate hike in February, Bullock did not rule it out. She stated that the RBA would closely monitor whether inflation remains persistently elevated. If inflation fails to return to target levels, “I think it would certainly raise questions about the tightness of financial conditions, and the board might need to consider whether to maintain current rates or whether to raise rates at some point.” She added that any decision would be made “meeting by meeting.”
Market Watch: Expectations of an RBA rate hike around late 2026 are already fully priced into the market. Tuesday's communication effectively signaled “don't expect any easing in the near term, nor assume the next move will be a rate cut.” Meanwhile, the RBA effectively acknowledged that the downward trend in inflation has stalled, with the balance of risks now tilting to the downside. Inflation is rising, domestic demand is stronger than anticipated, and the labor market remains excessively tight. Should persistent sticky service sector inflation, robust domestic demand, and strained labor conditions persist, future rate hikes would shift from tail risks to tangible options.
Technical Analysis
The AUDUSD has been rising steadily since 0.6420, with intraday momentum leaning neutral to bullish. It is poised to retest the 0.6705 high. A decisive break above this level would confirm the uptrend and target the 61.8% Fibonacci retracement level around 0.6910, derived from the 0.6420 to 0.6706 range.
However, the rally from the 0.6421 level has shown little structure, and the momentum for further gains lacks sustainability. The path of least resistance is downward.
Trading Recommendations
Trading Direction: Sell
Entry Price: 0.6670
Target Price: 0.6520
Stop Loss: 0.6750
Valid Until: December 26, 2025 23:55:00
Support: 0.6608, 0.6580, 0.6550
Resistance: 0.6670, 0.6690, 0.6707
Risk Warnings and Investment Disclaimers
You understand and acknowledge that there is a high degree of risk involved in trading with strategies. Following any strategies or investment methodologies is the potential for loss. The content on the site is being provided by our contributors and analysts for information purposes only. You alone are solely responsible for determining whether any trading assets, or securities, or strategy, or any other product is suitable for you based on your investment objectives and financial situation.
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Master of Economics, 8 years in the financial industry, CFA holder, joined HSBC (Hong Kong) Bank in 2013 after graduating from the University of California, USA in the Investment Research and Markets Department. With years of financial market experience and trading experience, having provided excellent investment advice to many brokerages, entity derivatives importers and clients in Greater China.
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