- AUD/USD remains sidelined after rising for the last two days.
- RBA downgrades economic growth forecasts, revises up inflation predictions in Monetary Policy Statement.
- US dollar’s corrective pullback ahead of NFP tracks recently firmer yields to challenge AUD/USD bulls.
- Headlines surrounding China, US NFP will be important for clear directions.
AUD/USD struggles to justify the Reserve Bank of Australia’s (RBA) quarterly Monetary Policy Statement, generally called MPS or SoMP, during Friday’s Asian session. That said, the Aussie pair remains sidelined at around 0.6970, pausing the two-day uptrend amid the cautious mood ahead of the US Nonfarm Payroll (NFP).
RBA warns that the economy will slow sharply as inflation soars, in its quarterly MPS. “Forecasts for economic growth this year were slashed by a full percentage point to 3.25%, while 2023 and 2024 were trimmed by around a quarter point to 1.75%,” said Reuters. The news also adds that the RBA has had to lift its forecast peak for headline inflation to 7.75%, when as recently as May it had tipped 5.9%.
Also read: RBA Statement: RBA jacks up its forecasts for inflation
Other than the RBA’s SoMP, the rebound in the US Treasury yields could also be linked to the AUD/USD pair’s latest retreat. That said, the US 10-year Treasury yields stabilize around 2.069% after declining in the last two days. Even so, the US Treasury yields continued to portray the risk of recession as the difference between the 10-year and 2-year bond coupons remain the widest since 2000.
Also portraying the risks of economic slowdown was the Bank of England’s (BOE) open acceptance of the recession in late 2022, as well as Cleveland Fed President Loretta Mester’s comments that mentioned recession risks have increased in the US.
Amid these plays, Wall Street closed mixed and the S&P 500 Futures remain directionless at the latest.
Having witnessed the initial reaction to the RBA’s MPS, AUD/USD traders may witness the lackluster day amid the pre-NFP trading lull. That said, the expected weakness in the US job numbers for July could help the AUD/USD to extend the previous day’s gains.
Technical analysis
A downward sloping resistance line from April 20 and 100-day EMA, close to 0.7025 and 0.7040 in that order, lures AUD/USD buyers unless the quote drops below a four-month-old previous support line, around 0.6875 by the press time.
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