Fri, Jul 30, 2021 @ 00:49 GMT
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AUD/USD Remains Pressured Ahead Of RBA Decision

After a busy past week, scheduled macroeconomic events in the current week slow down considerably. The focus of this week’s events will revolve around central bank activity in Australia and New Zealand. The Reserve Bank of Australia (RBA) is up first with its rate decision and statement on Tuesday in Sydney. The RBA’s monetary policy statement will then follow on Friday.

Australia’s central bank is widely expected to keep interest rates unchanged at 1.5%, especially since recent economic data has been soft, including both disappointing retail sales numbers as well as unexpectedly low inflation readings. The RBA has recently continued to harbor concerns over weak inflation, low wage growth, and the relative strength of the Australian dollar, which have combined to preclude the central bank from raising the cash rate from its current record low.

Meanwhile, the US dollar has generally continued to be supported by high expectations for rising US interest rates in December and into 2018 under the helm of newly-nominated Fed Chair Jerome Powell, as well as anticipation of impending US tax and other fiscal reform. Last week’s job report out of the US disappointed high expectations when it came out at ‘only’ 261,000 jobs added in October. However, September’s negative reading due to the impact of hurricanes was revised up to a positive number, and August was also revised substantially higher. In addition, the unemployment rate for October dipped unexpectedly to 4.1%, its lowest level in 17 years. Therefore, on balance, the jobs report on Friday painted an optimistic picture of the US employment landscape, which has contributed to supporting the US dollar.

Going forward, the divergence between the current monetary policy stances of the hawkish-leaning Fed and dovish-leaning RBA is likely to continue weighing on the AUD/USD currency pair. This will especially be the case if the RBA delivers a dovish statement on Tuesday. Since early September, when AUD/USD hit a long-term high above 0.8100, the currency pair has been in a sharp decline as the US dollar has climbed in recovery mode and the Australian dollar has been pressured in part by an increasingly dovish RBA. Most recently, AUD/USD has been trading in a consolidation after having broken down below key support around 0.7750 in late October. With any further RBA-driven pressure on the Australian dollar, AUD/USD is potentially poised to extend its downside correction, with the next major downside target around the key 0.7500 support level.
DISCLAIMER: The information and opinions in this report are for general information use only and are not intended as an offer or solicitation with respect to the purchase of sale of any currency. All opinions and information contained in this report are subject to change without notice. This report has been prepared without regard to the specific investment objectives, financial situation and needs of any particular recipient. While the information contained herein was obtained from sources believed to be reliable, author does not guarantee its accuracy or completeness, nor does author assume any liability for any direct, indirect or consequential loss that may result from the reliance by any person upon any such information or opinions.

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