Alike every first Tuesday of the month, the Reserve Bank of Australia (RBA) is up for conveying the latest monetary policy meeting and Interest Rate Decision around 04:30 AM GMT. Following the event, Governor Philip Lowe's press conference, around 06:00 AM GMT, will also be crucial to watch as traders will seek details of action/inaction.
Contrary to the recent status-quo, the Aussie central bank has already signaled July action in its latest monetary policy meetings, which in turn keeps AUD/USD traders on their toes ahead of the key announcements.
Although broad market consensus doesn’t favor any changes in the benchmark interest rate of 0.10%, chatters over editing the 3-year yield targets and or purchase adjustments can’t be ruled out. The same contrasts with the Oz nation’s recent worries over the coronavirus (COVID-19) strains and mixed data.
Australia and New Zealand Banking Group (ANZ) follows market sentiment while saying,
The Board has flagged it will make decisions on the 3yr yield target and quantitative easing (QE). We expect the 3yr yield target will be held at the Apr-24 ACGB rather than rolled to the next bond (the Nov-24), and that a flexible QE approach will be adopted, with weekly purchases of AUD 5 billion per week (to be reassessed later in the year). The RBA will also be digesting the strong housing data released last week. We continue to expect macro prudential policies to be implemented before year-end. Indeed, an informal tightening is already underway.
On the same line, FXStreet’s Valeria Bednarik said,
The AUD/USD is technically bearish, according to the daily chart. That means that a hawkish surprise will likely have a lesser impact on the pair than a dovish outcome from the RBA decision. In the mentioned time frame, the 200 SMA provides dynamic resistance at 0.7565, a probable bullish target in the case the Aussie appreciates with the announcement. On the downside, the level to watch is 0.7480, as a steeper decline could be expected on a break below it.
How could the RBA decision affect AUD/USD?
AUD/USD cheers broad US dollar weakness to refresh one-week high ahead of the RBA decision. Also favoring the quote could be the early Asian risk-on mood amid easing of covid concerns and return of full markets. Even so, strong Treasury yields and indecision over the Fed’s moves keep sentiment pressured.
That said, today’s RBA will be the market mover in any case. Although major concerns were favoring yield adjustments, covid resurge keeps inaction risks on the table. Hence, while any action by the RBA may propel AUD/USD further towards the north, inaction may not hesitate to reverse the latest gains. The bearish moves, however, have higher odds on their side considering the US dollar’s safe-haven appeal and the Fed’s likely hawkish appearance in 2021.
Technically, a sustained break of monthly resistance line, now support, keeps AUD/USD buyers hopeful to regain the controls. In doing so, 200-DMA near 0.7575 acts as the key hurdle.
Key quotes
AUD/USD Price Analysis: Bulls battle to pass 0.7550 mark
AUD/USD edges higher past 0.7500 ahead of RBA
Reserve Bank of Australia Preview: More dovishness in the docket
About the RBA interest rate decision
RBA Interest Rate Decision is announced by the Reserve Bank of Australia. If the RBA is hawkish about the inflationary outlook of the economy and rises the interest rates it is positive, or bullish, for the AUD. Likewise, if the RBA has a dovish view on the Australian economy and keeps the ongoing interest rate, or cuts the interest rate it is seen as negative, or bearish.
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