AUD/USD Forecast: Has eroded 9-month-long falling trendline ahead of the RBA rate decision

The Aussie dollar is on the offensive ahead of the Reserve Bank of Australia (RBA) interest rate decision.

The currency pair cleared the nine-month-long falling trendline last week, signaling a bearish-to-bullish trend change. At press time, the AUD/USD pair is trading at 0.7214, having clocked a high of 0.7258 on Friday.

RBA rate decision due at 03:30 GMT

• RBA now seen lifting rates in Q1 2020 – Reuters poll

The central bank is expected to keep interest rates unchanged at 1.5 percent for the 26th month straight - the longest stretch of policy stability on record.

So, changes in the tone of the policy statement and inflation forecasts, if any, will likely move the AUD pairs.

Indeed, inflation, as represented by the headline consumer price index (CPI), grew 1.9 percent in the third quarter as expected, but printed below the previous quarter's print of 2.1 percent. Further, the core inflation - trimmed mean and weighted CPIs - came in at 1.75 percent, missing the forecast of 1.9 percent, indicating the 2-3% inflation goal may remain elusive for another year.

Still, the AUD has cleared a major trendline hurdle, which indicates that investors likely do not expect the RBA to flag major changes to inflation forecasts.

Looking beyond inflation, the central bank is also expected to reiterate that elevated levels of household debt, subdued wage growth, and a soft housing market are causes for concern.

Further, when it comes to international trade, the RBA is expected to cite protectionism and the slowdown in China as a risk to the Australian economy.

All-in-all, the RBA could turn out to be a non-event for the markets. The Aussie dollar, if anything, would rise than fall if the central bank keeps inflation forecasts unchanged as expected.

Daily Chart

The AUD found acceptance above the long-term falling trendline and the key 50-day EMA hurdle last week, validating the bullish divergence of the RSI and stochastic.

Notably, the bullish breakout is backed by positive developments on the indicators. For instance, the RSI is printing bullish above 50.00 and the 5-day and 10-day EMAs are trending north in favor of the bulls. The rising MACD is indicating more gains could be in the offing.

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• For AUD/USD, the path of least resistance is on the higher side.
• The immediate resistance of 0.7266 (100-day EMA) could be put to test in the short-term. A break higher would expose the next resistance lined up at 0.7318 (July 20 low).
• A break below the ascending 10-day EMA would neutralize the immediate bullish outlook.