The risks coming into today's decision are quite clearly defined. The OIS market signals roughly 85% odds that traders are anticipating no change to the cash rate, so a 25 bps rate hike will be likely provide a strong boost to the aussie in the initial reaction.
But if we do see the latter come about, it will most certainly be a scenario where the RBA delivers a dovish hike. They already presented some hints of stepping back last month and with another potential rate hike today, they are likely to tone down the language even further to suggest that they might be headed to the sidelines.
As such, traders will have to balance that out alongside the 25 bps rate hike - that is if the RBA does deliver according to that scenario.
Otherwise, the aussie might see gains be more limited if the RBA does indeed hit the pause button today. The OIS curve already implies that we are at a peak in terms of market pricing, so there isn't much else to build on unless the central bank suggests that they will resume the tightening cycle in the months ahead.
Looking over to the technicals, the jump higher in AUD/USD yesterday saw it breach its 200-day moving average (blue line) and that is a positive development for buyers.
However, there is now key resistance from the 61.8 Fib retracement level at 0.6790 and the 100-day moving average (red line) at 0.6799. Those will be critical resistance points to pay attention to in trying to hold back any further gains.
But if we do see a 25 bps rate hike come about, those levels will be under threat with a jump towards the 50.0 Fib retracement level at 0.6860 on the cards. I would argue that it will be tough for the upside momentum to extend to 0.7000 purely based on the RBA alone but if risk sentiment continues to be more positive, that could provide some extra tailwind for the aussie.
As for downside levels, a drop back below its 200-day moving average at 0.6749 will be a big win for sellers in resetting price action to the consolidation range between 0.6600 and 0.6730 mostly.
