AUD/USD Forecast: Remains vulnerable below 0.7400 mark, awaits RBA on Tuesday

The AUD/USD pair continued with its struggle to find acceptance, or build on the momentum beyond the 0.7400 mark and came under some renewed selling pressure on Friday. Worries about the potential economic fallout from the fast-spreading Delta variant of the coronavirus overshadowed last week's dovish FOMC and softer US GDP print. This, in turn, benefitted the US dollar's relative safe-haven status and drove flows away from the perceived riskier aussie.

That said, firming market expectations that the Fed will retain its ultra-lose monetary policy stance for a longer period acted as a headwind for the greenback. On the economic data front, the US Core PCE Price Index – the Fed's preferred inflation gauge – edged higher to 3.5% YoY in June, missing expectations for a reading of 3.7%. This, to a larger extent, was offset an unexpected rise in the Personal Income and better-than-expected Spending data, albeit did little to influence the pair.

Meanwhile, the worsening COVID-19 situation in Australia was seen as another factor that acted as a headwind for the major. In fact, the country extended local restrictive measures to contain an emerging outbreak of the new strain. Apart from this, softer Chinese manufacturing data further undermined the China-proxy Australian dollar. China’s official gauge for the manufacturing sector activity eased to 50.4, while Caixin Manufacturing PMI dropped to 50.3 in July from 51.3 previous.

However, a generally positive tone around the equity markets extended some support to the major and helped limit any deeper losses. Investors also seemed reluctant to place any aggressive bets, rather preferred to wait on the sidelines ahead of the key central bank event risk. The Reserve Bank of Australia (RBA) is scheduled to announce its monetary policy decision on Tuesday. In the meantime, the release of the US ISM Manufacturing PMI might provide some impetus on the first day of the week.

Short-term technical outlook

From a technical perspective, the pair's inability to register any meaningful recovery and repeated failures near the 0.7400 mark suggests that the near-term selling bias is still far from being over. The negative outlook is reinforced by the recent range-bound price action, which constitutes the formation of a bearish continuation rectangle chart pattern. However, traders might still wait for a sustained break below the 0.7300-0.7290 region, or YTD lows touched in July, before positioning for any further depreciating move. The pair might then accelerate the fall towards testing the 0.7265 horizontal support. Some follow-through selling should pave the way for a slide towards the next major support near the 0.7230 region en-route the 0.7200 round figure.

On the flip side, any meaningful recovery attempt might continue to confront stiff resistance and meet with some fresh supply near the 0.7400 mark. This is closely followed by Friday's swing high, around the 0.7410-15 region, which if cleared decisively might prompt some short-covering move. Bulls might then push the pair further and aim to reclaim the key 0.7500 psychological mark.