AUD/USD Forecast: Under pressure ahead of RBA’s decision

AUD/USD Current Price: 0.6886

• The Reserve Bank of Australia will announce its monetary policy decision on Tuesday.
• Australian inflation rose further in January, according to the TD Securities Inflation report.
• AUD/USD edged lower for a third consecutive day and may fall further once below 0.6850.

The AUD/USD pair fell for a third consecutive day on Monday amid persistent US Dollar demand, bottoming for the day at 0.6854. The pair traded in the green during the Asian session, despite mixed Australian data. The  TD Securities Inflation report showed that the University of Melbourne inflation estimate rose to 6.4% YoY in January from 5.9% in December. The country also released Q4 Retail Sales, down a modest 0.2% in the three months to December. AUD/USD gained bearish traction during the European session as stock markets turned red. The slide continued with American trades also pushing local markets into the red.  

On Tuesday, the Reserve Bank of Australia (RBA) will announce its monetary policy decision, with the Board expected to pull the trigger by  25 basis points (bps) for four consecutive meetings. The RBA has been among the first to reduce the pace of tightening, opting for 25 bps hikes in October 2022. Given overheated inflation, there is a small chance Australian policymakers may opt for a 50 bps hike.  

Beyond the RBA announcement, the country will publish the AIG Performance of Services Index for December and the Trade Balance for the same month.

AUD/USD short-term technical outlook

The AUD/USD pair has room to extend its decline according to technical readings in the daily chart. It further fell below a now flat 20 SMA after piercing the indicator on Friday. The longer moving averages remain well below the current level, with neutral-to-bearish slopes. At the same time, technical indicators head firmly lower within negative levels, reflecting prevalent selling interest.

In the near term, and according to the 4-hour chart, the risk skews to the downside. AUD/USD remained below a flat 20 SMA, while the 20 SMA is crossing below the 100 SMA, both at around 0.7020, providing relevant resistance. Technical indicators have bottomed within oversold readings and are slowly turning higher, but still not enough to confirm an interim bottom. A strong static support area comes at 0.6850, where the pair has multiple weekly lows and tops since April 2022. A break below the level should lead to a steeper decline towards the next psychological figure at 0.6800.

Support levels: 0.6850 0.6805 0.6770

Resistance levels: 0.7020 0.7065 0.7110

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