AUD/USD rises to fresh two-month highs ahead of RBA interest rate decision

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  • AUD/USD retraces the 0.7000 level, a level last seen on June 13.
  • Sentiment is mixed, but AUD/USD was bolstered by a soft US dollar and the RBA decision.
  • US ISM manufacturing data remains in expansionary territory, although prices and new orders fell.

The AUD/USD rises above 0.7000 in a session of mixed sentiment, spurred by reports that US House Speaker Pelosi may visit Taiwan. China reacted, warning that it would carry out military exercises in the South China Sea from August 2 to 8, while some Chinese maritime administrations issued warnings prohibiting entry to the said sea.

AUD/USD is trading at 0.7031 after making a daily low above the 50-day EMA at 0.6966, although offers around the low pushed the Aussie to its daily high at 0.7047.

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AUD/USD rises, awaiting RBA decision

European and US equities fluctuate. US data reinforced that a recession could be knocking on the door. However, the ISM Manufacturing PMI for July remains in expansionary territory, at 52.8, beating expectations but down from June’s 53. Timothy Fiore, president of the ISM, commented that “panelists are now expressing concern about a softening of the economy,” which was reflected in new orders, which fell for the second month.

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In the Asian session, Australia’s manufacturing PMI came in at 55.7 according to estimates, but down from 56.2 in June. Meanwhile, Australia’s TD-MI inflation gauge rose 1.2%, further reinforcing the need to raise rates.

Analysts at TD Securities said most analysts expect the Reserve Bank of Australia (RBA) to raise the interest rate by 50 basis points. “We anticipate the RBA headline CPI forecast for the end of 22 to be around 7.5%yr, exceeding the RBA Governor’s target of 7%, with a cut to between 5.75% and 6%. This should support a rise of 50 basis points in September”. They added that “a 50 basis point hike and RBA forecasts similar to ours would likely cause the market to view the meeting as dovish in nature.”

Therefore, AUD/USD could come under pressure, although broad US dollar weakness will keep the Australian dollar afloat. However, China’s Caixin PMI rose by 50.4, lower than estimated, and could restrain AUD/USD quotes higher.

Over the weekend, Minnesota Fed President Neil Kashkari said he was surprised by the markets’ reaction that the Fed would soon begin to slow the pace of rates, while adding that inflation readings higher core prices would prompt him to back another 75 basis point hike.

On the other hand, the dollar continues its decline, losing 0.47% to 105,335, hurt by the drop in US Treasury bond yields. The US 10-year Treasury bond yield is trading at 2.616%, down three basis points. The reasons mentioned above propelled AUD/USD to fresh two-month highs.

What must be considered

The Australian economic docket will include the RBA interest rate decision at 04:30 GMT. In the US, JOLTs job offers will be published, and Chicago Fed President Charles Evans will give remarks.

Technical levels

AUD/USD

Panorama
Last Price Today 0.7034
Today’s Daily Change 0.0045
Today’s Daily Change % 0.64
Today’s Daily Opening 0.6989
Trends
20 Daily SMA 0.6864
50 Daily SMA 0.6971
100 Daily SMA 0.7123
200 Daily SMA 0.7175
levels
Previous Daily High 0.7033
Previous Daily Minimum 0.6911
Previous Maximum Weekly 0.7033
Previous Weekly Minimum 0.6879
Monthly Prior Maximum 0.7033
Previous Monthly Minimum 0.668
Daily Fibonacci 38.2% 0.6986
Daily Fibonacci 61.8% 0.6957
Daily Pivot Point S1 0.6922
Daily Pivot Point S2 0.6855
Daily Pivot Point S3 0.6799
Daily Pivot Point R1 0.7044
Daily Pivot Point R2 0.71
Daily Pivot Point R3 0.7167

Source: Fx Street

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