AUD/USD steady ahead of RBA decision

The Australian dollar has started the new trading week with slight gains. In Monday’s North American session, AUD/USD is trading at 0.7179, up 0.24% on the day.

Traders and investors have been treated to plenty of volatility from the Aussie of late. AUD/USD rebounded last week, posting gains of 1.8 percent. This followed a dreadful week in which the pair fell by 3.5%, its worst week since mid-March. Will the sharp swings continue this week? The answer could depend on the RBA.

Will RBA slice interest rates?

The Reserve Bank of Australia will hold a policy meeting on Tuesday (00:30 GMT). With Australia’s economy groaning under the weight of the Covid-19 pandemic, some experts are projecting a cut in the Cash Rate to 0.10%, which has been pegged at 0.25% since March. However, most economists expect the central bank to wait until November, and the markets are not expecting a change. With the government releasing a budget on Tuesday, just hours after the RBA decision, bank policymakers may prefer to give the budget its “day in the sun” and not crowd the airwaves with a dramatic rate cut. If the bank does go ahead with a rate cut at tomorrow’s meeting, it would catch the markets off guard and would likely send the Aussie to lower ground.

Even though the RBA may decide to stand pat until November, the bank has a clear easing bias. Guy Debelle, Deputy Governor of the RBA, hinted last week that the RBA planned to cut rates, and added that currency intervention and negative rates were also possible options. This stance could make it difficult for the Aussie to make further inroads against the US dollar.

AUD/USD Technical

• AUD/USD is testing resistance at 0.7189. Just above this line is the 20-day MA, which remains relevant. This is closely followed by resistance at 0.7218
• We find support at 0.7131, followed by support at 0.7101
• AUD/USD continues to put downward pressure on the 10-day MA. If the pair breaks below this line, it would indicate a downtrend for the pair