The Reserve Bank of Australia (RBA) is set to announce the fifth straight rate hike this Tuesday at 04:30 GMT.  The central bank is widely expected to raise the Official Cash Rate (OCR) by 50 bps from 2.35% to 2.85%.

According to the latest Reuters poll, over a 70% majority of economists, 21 of 29, predicted the RBA would hike its cash rate by half a point to 2.85% at its October 4 meeting. Although the median forecast showed rates going up another 50 basis points next quarter to peak at 3.35%.

RBA Governor Philip Lowe already tempered expectations of aggressive rate hikes last month, as he said that they had almost neared the 2.50% neutral rate. Since then, fears over hard-landing and softer Australian monthly inflation have revived the bets for a dovish rate hike.

Therefore, a 25 bps rate hike decision by the RBA may not come as much of a surprise, as most major central banks are turning cautious amid growing recession fears and surging energy costs. Dwindling demand from China also remains a major concern for Australia. China is the island nation’s closest trading partner.

How could the RBA decision affect AUD/USD?

At the time of writing, AUD/USD is trading on the back foot at around 0.6500, reversing Monday’s rebound to near 0.6520. Investors refrain from placing any directional bets on the aussie ahead of the critical RBA rate hike decision.

Technically, the pair has been traversing in a familiar range ever since it hit fresh 2022 lows at 0.6363. In case of a dovish surprise, bears could flex their muscles and revisit the 0.6400 before challenging the yearly lows. The 14-day Relative Strength Index (RSI) inches lower below the midline, suggesting that there is more room for the downside.

On the upside, a sustained move above the 0.6530 range highs is needed to yield a pennant breakout, opening doors for a fresh rally towards 0.6600. The bearish 21-Daily Moving Average (DMA) at 0.6639 will be the next resistance line on the upside break.

AUD/USD: Daily chart

Key quotes

Reserve Bank of Australia Preview: Has the time come to flip dovish?

AUD/USD seeks cushion around 0.6500 as hawkish RBA bets soar

About the RBA interest rate decision

RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.