AUD/USD bounces off three-week-old rising trendline ahead of RBA

While Aussie’s failure to cheer trade-positive headline, mainly due to the USD strength, dragged it during the previous day, the pair seems to benefit from recent second-tier data while bouncing off the multi-day-old rising support line. The AUD/USD pair takes the bids to 0.6885 by the press time of early Tuesday morning in Asia.

Pair’s recent recovery could be attributed to the AiG Performance of Services Index for October that crossed 51.5 prior to 54.2. The figure countered the October month figures of the Services and Composite Purchasing Managers Index (PMI) from the Commonwealth Bank of Australia (CBA) as Services PMI dropped from 50.8 preliminary reading to 50.1 which dragged the Composite PMI to 50.0 from 50.7 initial estimations. Market reaction to the Politico’s news that China’s pressing the US for a heavy tariff cut is still awaited.

With the Reserve Bank of Australia’s (RBA) monetary policy meeting well on the cards, Aussie buyers couldn’t well react to the US-China trade-positive headlines, including upbeat statements from the United States (US) and Chinese diplomats on Monday. That said, downbeat data from the US were also largely ignored as markets rushed to the greenback despite overall risk-on.

The US 10-year treasury yields gained five basis points to 1.78% while Wall Street probed record highs amid trade optimism.

Looking forward, investors could find a little momentum based on China’s Caixin Services PMI. The forecast suggests a mild recovery to 52.8 versus 51.3 earlier, joining the previously released Caixin Manufacturing PMI, to please Antipodeans.

The RBA is widely expected to hold its present monetary policy unchanged with Westpac saying, “There is now little tension over the RBA’s decision on the cash rate at today’s Board meeting, with markets almost fully priced for a steady hand at 0.75% (2:30 pm Syd/11:30 am Sing/HK) even though the RBA still has an easing bias and November is one of the RBA’s preferred months for policy changes. The dip in Australia’s unemployment rate in Sep, positive headlines on US-China trade and the FOMC’s “pause” message all provide the RBA the chance to hold steady and focus on its baseline forecast that Australia’s economy will return to trend growth in 2020 (around 2.75%), without fear of a sustained rise in AUD.”

Technical Analysis

Pair’s bounce from an upward sloping trend line since mid-October, at 0.6878 now, will have multiple resistances, first in the form of July 10 low near 0.6910 and then 200-day Simple Moving Average (SMA) level of 0.6953, to justify its strength. In case prices decline below support line, 100-day SMA level of 0.6850 and late-October low near 0.6810 will be on sellers’ radar.