AUD/USD: Positive near four-day high, eyes on speech from RBA’s Lowe

• AUD/USD extends RBA-led gains, registers a two-day winning streak.
• Improvements in the market’s risk-tone also helped ignore broad US dollar strength.
• Second-tier PMIs from Australia and China will also be watched closely.

AUD/USD holds onto recovery gains to 0.6738 at the start of Wednesday’s Asian session. On Tuesday’s, the RBA’s surprise hawkish halt helped the Aussie pair to register noticeable swing from the multi-week low. Also increasing the pair’s strength was the market’s positive trade sentiment. In doing so, the quote paid a little heed to the USD’s strength as well as better than forecast 1.2% US Factory Orders to 1.8% figures.

RBA played its role, will Lowe do the same?

The RBA surprised global markets during the previous day despite matching wide expectations of no rate change and readiness to cut the rates if needed. The reason could be traced from the RBA’s rate statement that mentioned Aussie bushfires and coronavirus to have temporary impacts on the economy. These incidents were earlier expected to weigh heavily and push the Aussie central bank nearer to another rate cut.

That said, traders are now playing close attention to the RBA Governor Philip Lowe’s speech titled "The Year Ahead" at the National Press Club, in Sydney. During his public appearance in November, RBA’s Lowe showed readiness to act if inflation falls dramatically and employment data also flash negative signals. However, nothing has happened since then. As a result, it can be expected that the Aussie central bank Governor might sound a bit upbeat during his today’s speech. However, the subject of the speech might push the policymaker to repeat the central bank’s “ready to act, if needed” statement.

PMIs are important too…

While RBA’s Lowe holds the first line, January month PMIs from Australia’s Commonwealth Bank (CBA) and China’s Caixin are also important. CBA’s Services PMI and Composite PMI are both expected to remain unchanged at 48.9 and 48.6 respectively whereas China’s Caixin Services PMI is likely to improve to 52.6 from 52.5. Considering the recently positive PMIs, despite coronavirus fears, welcome numbers from these catalysts could further strengthen the RBA’s argument that the lethal virus from China will have a temporary impact on the economy.

It’s worth mentioning that the market’s risk-tone remains on the recovery mode as upbeat data from the major economies and RBA’s positive comments managed to counter coronavirus fears. To portray the same, the US 10-year treasury yields rose eight basis points (bps) to 1.60% whereas Wall Street also registered gains by the end of Tuesday’s US trading session.

Following the catalysts from Australia and China, the US Trade Balance, ADP Employment and ISM Non-Manufacturing PMI will also be observed closely. One should also be mindful of China’s coronavirus as an important catalyst.

Technical Analysis

Unless clearing November month low near 0.6755, AUD/USD prices are less likely to revisit 0.6800 mark. On the downside, October 2019 low near 0.6670 becomes the key support to watch.