AUD/USD: Off one-week low to regain 0.7100, eyes RBA

AUD/USD takes rounds to 0.7125 at the start of Tuesday’s Asian session. The aussie pair recently pulled back from the lowest since July 24. Though, the 0.7120-32 area seems to restrict the quote’s recovery moves currently. While the US dollar’s bounce portrayed a second daily loss-making day on Monday, bears are catching a breather ahead of the key data/events from Australia.

US dollar recovery or a pullback?

Although catalysts ranging from the month-end positioning to upbeat US data favored the greenback’s gains, there are no strong clues as to the currency’s future strength. The US dollar index (DXY) stabilized around 93.50 by the end of Monday. In doing so, the greenback’s gauge versus the major currencies stretched its U-turn from the lowest since May 2018, triggered Friday.

Upbeat prints of ISM Manufacturing PMI, up 54.2 versus 53.6 forecast, rekindled expectations that the American economy is strong enough to ward off the coronavirus (COVID-19) risk. Also favoring the greenback could be the policymakers’ rush to cut the much-awaited deal on the fiscal stimulus, with the decision on unemployment claim benefits be the priority. However, the pandemic continues to pose a threat to the USD’s return whereas the Fed policymakers’ dovish outlook also poses a threat to the bulls.

On the other hand, upbeat figures from Australian PMI and TD Securities Inflation, not to forget China’s Caixin Manufacturing PMI, failed to please the bulls. The reason could be traced from worsening COVID-19 conditions in Victoria. Even if the new cases have eased from +670 to near 430, downbeat comments from Victorian Premier Daniel Andrews, suggesting further business closures, weigh on the quote. On Sunday, Victoria declared a state of disaster and imposed new lockdown measures until at least 13 September.

Against this backdrop, the market’s risk-tone remains upbeat. To portray the mood, Wall Street marked gains on Monday whereas the US 10-year Treasury yields also gained 1.8 basis points (bps) to 0.554%.

Moving on, traders will keep eyes on the RBA’s monetary policy decision and Statement of Monetary Policy (SoMP). While the policymakers are less likely to offer any surprises, the recent outbreak of the virus in Victoria might push them towards a dovish outlook, which in turn could extend the Australian dollar’s weakness.

Read: RBA Preview: COVID running a muck? An Exy Aussie? Nah, no worries mate!

Ahead of the RBA, Australia’s June month’s Retail Sales may confirm 2.4% preliminary forecast whereas Trade Balance can rise to 8,800M from 8,025M for the said month.

Technical analysis

An ascending trend line from May 22, currently around 0.7075 precedes the 0.7065/60 support-zone, comprising June 10 high and July 24 low, to restrict the pair’s near-term downside. Alternatively, bulls have to dominate past-0.7200 to regain market confidence.