AUD/USD extends downside towards 0.6600 as RBA surprisingly keeps interest rates steady

The AUD/USD pair delivers a vertical fall and declines further towards the round-level support of 0.6600 in the European session. The Aussie asset looks set for a further decline as the Reserve Bank of Australia (RBA) surprisingly keeps interest rates unchanged at 4.10%. Also, the upbeat US Dollar Index builds pressure on the Aussie asset.

S&P500 futures remain weak in London as investors turn precautionary ahead of US factory activity data. The US Dollar Index (DXY) refreshes a three-week high at 102.22 as fears of global recession deepen due to tight monetary policy by global central banks. The 10-year US Treasury yields have jumped to 4.0% ahead of labor market data.

But before the Employment report, Manufacturing PMI will be keenly watched. As per the consensus, Manufacturing PMI is seen higher at 46.5 vs. June’s figure of 46.0. In spite of higher factory activities, the Manufacturing sector is expected to remain in a contracting phase. Investors should note that a figure below 50.0 is considered contracting and this would be the ninth contraction print in a row.

The Australian Dollar senses significant pressure as RBA Governor Philip Lowe maintains the status quo. RBA Lowe keeps interest rates unchanged at 4.10% but remains doors open for further rate hikes. Australian inflation is declining at a decent pace. Regarding the inflation outlook, RBA forecasted that inflation will return to 2-3% by late 2025.

Inflation in Australia could rebound further as global oil prices have recovered significantly and labor market conditions are extremely tight. An upbeat labor shortage could keep consumer spending momentum intact. Going forward, investors will focus on Q2 Retail Sales data, which will release on Thursday.