The US Federal Reserve maintained rates at 5.5% for second consecutive meeting and even though it kept more tightening in play, there was a dovish shift in its language. Chair Powell steered away from his previous hawkish bias, not reiterating the recently expressed view that policy is not sufficiently restrictive. Markets already believed that the Fed is done hiking and yesterday's outcome reinforces those expectations.
The Reserve Bank of Australia stayed on the sidelines over the last four meetings, but has kept more increases on the table and the accounts of the last decision showed readiness to act if necessary. Last week, Governor Bullock spoke of risks that inflation could return to target "more slowly than currently forecast" . The Consumer Price Index (CPI) has been falling over the past three quarter, but at 5.4% y/y in Q3 is far from the 2-3% target, while the monthly measure rose to 5.6% y/y in September and the highest since April.
The International Monetary Fund (IMF) on Tuesday, recommended "further monetary policy tightening" to ensure that inflation will fall back to target by 2025 . The ASX RBA Rate Indicator, prices in a 52% change that policymakers will hike rates when they convene on Tuesday, showing that the meeting is live. 
AUD/USD gains around 1.5% since yesterday and extends the recovery from last month's 2023 lows, due to this shift in monetary policy dynamics It moves past the EMA200 and the 23.6% Fibonacci of the summer high/October low drop, into the thick daily Ichimoku Cloud. Its rapid rise brings 38.2% Fibonacci (0.6510-21) in its crosshairs, but will likely need fresh catalyst for taking it out and moving towards and beyond 0.6584.
On the other hand, the Fed may still need to increase rates again, given strong economic performance and still elevated inflation. At the same time, hike expectations around its Australian counterpart create room for disappointment, if policymaker hesitate to pull the trigger. Furthermore, the move looks stretched, the upside is hostile and AUD/USD has faltered above the EMA200 multiple times. As such, there is scope for a return below it that that would create risk for new 2023 lows (0.6269).
Other than Tuesday's pivotal RBA policy decision tomorrow's US employment report can also affect the trajectory of the pair.
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
Retrieved 02 Nov 2023 https://www.rba.gov.au/speeches/2023/sp-gov-2023-10-24.html