AUD/USD under pressure ahead of RBA as USD rallies

AUD/USD has been one of the worst affected by the cease-fire in trade wars between Washington and Beijing from the weekend's meeting between Trump and Xi on the sidelines of the G20 summit. The greenback has picked up a bid as markets scramble back to the Dollar, dialling back rate cut expectations to a degree on signs of improving geopolitics across the Pacific between the U.S., China and North Korea. The greenback is 0.70% higher and gold is down 1.55% a the time of writing. AUD/USD is -0.92%. 

Looking ahead, the Reserve Bank of Australia will be making its interest decision tonight on a week where a great number of data releases are streaming in from the U.S. We have already seen today's ISM and Markit Manufacturing PMI giving the dollar a boost arriving at 51.7 vs 51.0, 50.6 vs 50.1 respectively. However, the key focus will be with the end of week's normal first Friday of the month Nonfarm Payrolls. 

Plenty of risk events on the radar

"We look for payrolls to bounce to 150k in June, following the below-expectations 75k May print. Employment in the goods sector should remain soft, while we look for a modest rebound in the services sector. The household survey should show the unemployment rate remained steady at 3.6%, while wages are expected to rise 0.3% (3.2% y/y) on the back of a favourable reference week," analysts at TD Securities explained. 

It’s a very busy week next week over in Australia too.  Since having cut 0.25% from 1.50% to 1.25% on June 4, in his dovish speech at the start of start month Governor Lowe, who is also slated to speak tomorrow, referred to an “accumulation of evidence” that inflation pressures will remain subdued. He said that it is “not unrealistic to expect” another cut, so markets are pricing in a rate cut to 1% for tonight by around 70-75% chance.

"We see risk of AUD/USD edging towards 0.67 by the end of the year," analysts at Westpac said. "Australian GDP rose by 0.4% q/q in the first quarter of the year. The year-on-year growth rate of 1.7% was the slowest pace recorded since 2009.  Given the backdrop of softening global growth and specifically a weakening Chinese economy, there are plenty of headwinds facing Australia. "
Also, Parliament resuming where the focus will be on fiscal policy and the passage of PM Morrison’s tax package. May building approvals and merchandise trade balance and retail sales come later in the week.

AUD/USD levels

Having called the dip back to the 0.6950/35 vicinity, the 50% retracement of the recent leg higher, analysts at Commerzbank said that AUD/USD has reached the 0.7022 the June peak and the April peak at 0.7069:

"Very near term we note the 13 count on the 240 minute chart and we have exited our longs for now.  Further up resistance can be spotted at the 0.7207 February high. A rise above the 0.7207 late February high would target the December 2018 high at 0.7394."