AUD/USD holds key level of 0.6400, RBA monetary policy in focus

AUD/USD stays above the key support level of 0.6400, while the US Dollar trades with caution
The RBA is expected to lower its OCR by 25 bps to 3.85% on Tuesday.
Investors await the preliminary US Michigan Consumer Sentiment Index data for May.

Sagar Dua FXStreet

The AUD/USD pair is slightly higher to near 0.6420 during European trading hours on Friday, but is inside Thursday’s trading range. The Aussie pair is expected to trade broadly sideways as investors await the Reserve Bank of Australia’s interest rate decision, which will be announced on Tuesday.

According to a Reuters poll conducted May 12-15, the RBA will reduce its Official Cash Rate (OCR) by 25 basis points (bps) to 3.85%. Analysts remained highly confident of a

Economists at ANZ Bank expect the RBA to lower its OCR twice again in the remainder of the year. They are highly confident about further monetary policy easing by the RBA due to pessimism over the business environment, despite the United States (US) and China having agreed to lower tariffs by 115% for 90 days.

"There are indications some of those tariff announcements are going to be wound back, but the big question is how this actually shakes consumer confidence and how businesses are feeling... There is some clear softness in the business environment, which would support a rate cut from the RBA next week," Madeline Dunk, economist at ANZ.

Given that the Australian economy relies heavily on its exports to China, a revision in the Chinese economy influences the Australian Dollar (AUD).

Meanwhile, the US Dollar (USD) trades cautiously ahead of the preliminary Michigan Consumer Sentiment Index (CSI) data for May, which will be published at 14:00 GMT. The sentiment data is expected to come in higher at 53.4 from 52.2 in April after declining for four months in a row due to de-escalation in the trade war between the US and China.

Economic Indicator

RBA Interest Rate Decision

The Reserve Bank of Australia (RBA) announces its interest rate decision at the end of its eight scheduled meetings per year. If the RBA is hawkish about the inflationary outlook of the economy and raises interest rates it is usually bullish for the Australian Dollar (AUD). Likewise, if the RBA has a dovish view on the Australian economy and keeps interest rates unchanged, or cuts them, it is seen as bearish for AUD.

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