AUD/USD traders nervous for interest rates in Australia, RBA tonight
|- AUD/USD bulls pressing up against a key support area before the RBA.
- Australia's interest rate is up for review in money markets while forex traders will brace for a possible mini-taper tantrum.
- It is a flip of a coin as to whether the RBA will decline to taper or increase its asset purchase at today's meeting.
The Reserve Bank of Australia will meet today and decide on its monetary policy for the foreseeable future.
While traders are certain that interest rates are on hold, the prospects of tapering are the risk.
This leaves the Aussie vulnerable to a strong bid and paints a bullish backdrop going into the event today.
With that being said, something to the contrary could be catastrophic for the currency considering markets are searching for yield.
Cyclical currencies, such as AUD, may already come under pressure this week should the delta variant be seen to stamp out near-term growth prospects in APAC nations.
The US dollar is showing signs of robustness at the start of this week, despite the dismal Nonfarm Payrolls data that arrived on Friday.
Investors are of the opinion that should the US sneeze, the rest of the world will catch a cold as well.
While the Federal Reserve is unlikely to taper as soon as markets might have expected during the course of very strong employment over the last quarter, it is unlikely to fall too far behind.
Other central banks that have already started or are on the brink of tapering, such as the BoC and the RBA, could rein it all in should need be.
The RBA was due to start to taper, if only very cautiously, in September.
However, considering the latest outbreak of the highly contagious Delta variant of coronavirus, the lockdowns mean they might not.
“We think the RBA Board will decide to delay the bond taper from AUD5 B per week to AUD4 B scheduled for September, but the decision is likely to be very close and could go either way,'' analysts at ANZ Bank said.
In such a scenario, traders might continue to favour currencies of nations that are not seen to be so worse off in terms of the virus and lockdowns.
An exodus from the Aussie could see it plummet vs the greenback as a result.
“We fully expect that the taper commitment will be deferred,'' analysts at Westpac said.
''But an even better response would be to lift purchases from AUD5 B to AUD6 B with a review at the November Board meeting when the risks around the reopening of the economies and the spread of the virus will be much clearer,'' the analysts argued.
Such a move would be expected to really hit the Aussie across the board.
''The RBA has always been prepared to contribute to policy efforts to assist in dealing with economic shocks. This brutal contraction in the economy should be no exception,” the analysts at Westpac explained.
However, it is not a done deal and traders should be prepared for an outcome both ways for the RBA has been known to ook through current events and remain bullish on the outlook going forward and beyond the lockdowns.
“We expect the RBA to stick to its taper decision at its Board meeting on 7 September,'' analysts at TD Securities forecast.
''Despite the worsening COVID-19 situation, the silver lining is the better vaccination rollout while ample fiscal stimulus appears more suited in supporting the economy at this juncture than monetary stimulus. This should give the RBA room to justify its decision to carry on with its taper until its next review in November.”
US dollar technical analysis
Meanwhile, as measured by the DXY index, the greenback is attempting to regain support in the 92.20 / 92.30s area:
This is critical for the commodity complex for which it is priced by USD.
AUD trades as a proxy to the commodities and should we see a significant resurgence n the US dollar, perhaps to test the 61.8% ratio near 92.50, then the Aussie would be expected to come under strong selling pressure.
AUD/USD technical analysis
The price is on course for a restest of the 38.2% or possible the 50% ratios if bulls do not commit at this juncture.
Failing that, there is support all the way beyond the 61.8% ratio near the Aug 30 structure between 0.73 the figure and 0.7320.
On the upside, bulls may commit and see 0.7480 and then 0.75 taken on. 0.7650 marks the weekly sprint lows done in April 2021.
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