AUD to USD Forecast: Sub-$0.6650 Hinged on the RBA

Highlights

• It is a big Tuesday session for the AUD/USD, which wrapped up July with a 0.93% gain.
• The RBA interest rate decision and Rate Statement will provide direction, with economists forecasting a 25-basis point interest rate hike.
• The near-term technical indicators turned bearish, signaling a return to $0.6650.

On Monday, the AUD/USD gained 1.07% to end the day at $0.67169. Economic indicators from Australia took a back seat, with China’s stimulus to drive consumption providing support. The stimulus news muted the impact of weaker private sector PMIs from China.

This morning, building approvals and home loan numbers from Australia should have a limited impact on the AUD to USD. The RBA interest rate decision and rate statement will be in focus. Economists expect the RBA to raise the cash rate by 25 basis points. However, the influence will likely hinge on the RBA rate statement, with forward guidance as the focal point.

However, Caixin manufacturing PMI numbers from China will move the dial. Economists forecast the Manufacturing PMI to fall from 50.5 to 50.3 in July.

Economic indicators from China have a material impact on commodity prices. Weak numbers would signal deteriorating macroeconomic conditions and weakening demand for raw materials. The Aussie Dollar is a commodity currency, meaning the Aussie is sensitive to economic indicators from China and commodity prices.

The US Session

It is a busier US session, with finalized Markit manufacturing PMI numbers and the ISM Manufacturing PMI in focus. While the headline ISM number will influence, investors should consider the sub-components, including employment and prices.

A pickup in hiring and an upward trend in input and factory gate prices would leave the chances of a September Fed interest rate hike on the table.

While bets on a September Fed interest rate hike have eased, US economic indicators show continued momentum in the US economy. The favored ISM manufacturing PMI will have more influence, with investors needing to consider the prices and employment sub-components. A pickup in price pressure would drive inflationary pressures. However, the ISM Non-Manufacturing PMI on Thursday will have more weighing.

AUD/USD Price Action

Daily Chart

The Daily Chart showed the AUD/USD break through the $0.6700 – $0.6680 resistance band to target the 50-day EMA ($0.67187) and the $0.6729 – $0.6755 resistance band.

However, despite the breakout session, the AUD to USD sat below the 50-day ($0.67198) and 200-day ($0.67495) EMAs, sending bearish near and longer-term price signals. However, the 50-day EMA narrowed on the 200-day EMA suggesting a bullish session ahead.

Looking at the 14-Daily RSI, the 48.88 reading signals a bearish trend and supports a return to sub-$0.6650. However, a move through the 50-day EMA ($0.67187) would give the bulls a run at the $0.6729 – $0.6755 resistance band and the 200-day EMA ($0.67495). Failure to move through the 50-day EMA would leave the $0.6700 – $0.6680 support band (previously resistance band) in play.

4-Hourly Chart

Looking at the 4-Hourly Chart, the AUD/USD sits below the $0.6729 – $0.6755 resistance band. The AUD/USD also remains below the 50-day ($0.67329) and 200-day ($0.67276) EMAs, sending bearish near and longer-term price signals.

Significantly, the 50-day EMA narrowed on the 200-day EMA, supporting a return to sub-$0.6650. However, an AUD/USD move through the 200-day and 50-day EMAs would signal a breakout from the $0.6729 – $0.6755 resistance band to target $0.68.

Looking at the RSI indicator, the 14-4H RSI reading of 50.22 indicates moderately bullish momentum, with buying pressure outweighing selling pressure. The RSI signals a move through the EMAs to target the upper level of the $0.6729 – $0.6755 resistance band.

Price action today will hinge on the RBA interest rate decision and rate statement.