AUD/USD remains near lows in months, RBA on Tuesday

• AUD/USD is hovering in a tight range below 0.6800 on Monday.
• Bets on aggressive Fed rate hikes keep dollar strong.
• Tuesday is the decision of the Australian central bank.

The AUD/USD is having a hard time making up ground on Monday and is trading in a tight band for the first half of the day. The pair is currently hovering around the 0.6780 area, just a few points above its lowest level since mid-July, hit on Friday.

The US dollar hit a new two-decade high on the first day of a new week, measured by the DX and is being a key factor for the AUD/USD. Even though Friday’s US employment report was not very good, expectations that the Federal Reserve will maintain its aggressive tightening policy continue to support the dollar. Indeed, markets are pricing in a higher probability of a 75 basis point rate hike at the next FOMC meeting on September 20-21.

That said, the better-than-expected Chinese service sector activity report, coupled with signs of stability in equity markets, offer some support for the Aussie. Trading volume is expected to be below average due to the Labor Day in the USA on Monday. Tuesday is the meeting of the Reserve Bank of Australia (RBA).

It is planned that the RBA announce its decision during the Asian session on Tuesday and is expected to continue raising rates. However, investors remain divided on the magnitude of the rate hike. Attention will therefore turn to the accompanying monetary policy statement, which will seek clues as to whether the Australian central bank will continue to normalize rates amid concerns of a global economic downturn.

This, in turn, will play a key role in the influence of the Australian dollar and help determine the short-term path of the AUD/USD pair. Meanwhile, spot prices are more likely to extend range runs. However, the fundamental background favors the bears, although a sustained break below the 0.6775-0.6770 support is needed to confirm the negative bias.

Technical levels