AUD/USD bulls take a breather below 0.7050 ahead of RBA Interest Rate Decision

• AUD/USD seesaws near six-week high, fades upside momentum of late.
• Market sentiment dwindles as downbeat PMIs signal recession risk amid pre-NFP caution.
• RBA is expected to announce rate hike worth 0.50%, the fourth so far.
• Aussie housing data, Fedspeak will also be important for clear directions.

AUD/USD portrays the typical pre-event cautious mood while taking rounds to 0.7020-30 ahead of the Reserve Bank of Australia’s (RBA) Interest Rate Decision. In addition to the RBA-linked anxiety, the shift in the market’s sentiment also contributes to the Aussie pair’s inaction around the six-week high during Tuesday’s initial Asian session.

AUD/USD began the week on a front foot, despite China’s downbeat PMIs and mixed data at home. The reason could be linked to the US dollar’s weakness amid fears of “technical recession” and Fed Chair Jerome Powell’s indirect signals that the hawks are running out of steam. However, figures from the US and Europe have been disappointing and backed the economic slowdown fears, which in turn weighed on the risk barometer pair.

That said, China’s official NBS Manufacturing PMIs for July dropped to 49.0 versus 50.4 expected and 50.2 prior whereas Caixin Manufacturing PMI for July eased to 50.4 versus 51.5 expected and 51.7 prior.

At home, Australia’s AiG Performance of Manufacturing Index for July also eased to 52.5 from 54.00. Also, final prints of Australia’s S&P Global Manufacturing PMI confirmed the 55.7 mark but the prior readings were revised upwards to 56.2. That said, the TD Securities Inflation for the Pacific nation also improved during July, up 5.4% YoY versus 4.7% prior.

Elsewhere, US ISM Manufacturing PMI dropped to the lowest since 2020 in July as the activity gauge dropped to 52.8 versus 53.0 prior. However, the actual figures were better than the 52.0 market forecast. Also, final readings of the US S&P Manufacturing PMI eased below 52.3 initial estimates to 52.2, compared to 52.7 prior. Furthermore, Germany’s Retail Sales dropped 8.8% YoY in June versus -8.0% market consensus and -3.6% prior.

It should be noted that the fresh Sino-American tussles over Taiwan join Friday’s hawkish comments from Minneapolis Fed President Neil Kashkari and a firmer print of the Fed’s preferred inflation gauge to also exert downside pressure on the AUD/USD prices.

Amid these plays, Wall Street closed with mild losses while the US 10-year Treasury yields refreshed a four-month low of around 2.58%.

Moving on, the RBA is expected to announce the fourth rate hike and is likely to favor buyers with the 50 basis points (bps) of a lift to the benchmark rate. However, a recently downbeat economic forecast from the Aussie Treasury and the looming fears of a recession could probe the policymakers to be alert for the next move, which in turn might trigger the AUD/USD pair’s pullback if marked.

Also read: Reserve Bank of Australia Preview: How aggressive can it be?

Technical analysis

Although the 100-day EMA challenges AUD/USD bulls around 0.7050, the pair’s downside remains challenged by the previous resistance line from April, around 0.6910 at the latest.