The Australian dollar is trading high against the US dollar today as investors bet that interest rates could rise as soon as April, hammering bonds and sending yields soaring to peaks not seen since 2019.

The central bank declined to purchase the April 2024 target bond, even though the yield was much higher than the bank’s target of 0.10%. The bond market responded by sending the yield up to 0.50%. This gave the indication that the RBA has abandoned its yield target and thus fueled market bets that the central bank will raise the cash rate ahead of its plan to raise rates only in 2024. The markets have now priced in a hike of 50 basis points by mid-2022 and 100 basis points by the end of 2022.

The Reserve Bank of Australia holds a policy meeting on November 2nd and it will be quite interesting to see what the bank does to cover today’s drama. Will policy makers acknowledge that the rates are unlikely to remain at 0.1% until 2024? Will the bank make any changes to its yield curve policy? Inflation is another area that the markets will be looking for some guidance at next week’s meeting.

Ben Jarman, a rate strategist at JPMorgan said “This is a very significant surprise,” “Silence is a strong signal and next week it seems the RBA will formally drop YCC entirely.”

“It had already looked likely that the calendar guidance – first hike expected in 2024 – would go, as it had been tenuous for a while, so that is likely to be removed entirely too.” As a result, Jarman now expected a first hike in the 0.1% cash rate to come in the fourth quarter of next year, instead of late 2023 as previously forecasted.

Elsewhere, Australia Retail Sales has not only snapped a three-month downtrend but made a rise of past +0.2% forecast to +1.3%, versus -1.7% prior, during September. Additionally, the Producer Price Index (PPI) data for the third quarter (Q3) also jumped above +0.3% market consensus and +0.7% prior readings to +1.1%. Further, the YoY figures rose to 2.9% versus 3.2% expected and 2.2% previous readouts.

On the other hand, the absence of deal on US President Joe Biden’s $1.75 trillion stimulus package weighs on the market sentiment. Recently, US House Speaker Nancy Pelosi conveyed her optimism towards the passage of both infrastructure and social spending, climate bills during the phone call to postpone the vote on the infrastructure bill.

AUD/USD 4 Hour Chart:

Support: 0.7495 (S1), 0.7449 (S2), 0.7419 (S3).

Resistance: 0.7571 (R1), 0.7601 (R2), 0.7646 (R3).

The RBA’s move and Retail sales data favors Aussie over greenback. We expect a bullish trend for AUD/USD.