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The AUD/USD exhibited noteworthy fluctuations on Monday, initiating the day with a substantial upward movement that was later reversed significantly during European and North American trading sessions. Resulting in its retreat below pivotal downtrend resistance levels. While the focal point on the Australian data calendar remains the Reserve Bank of Australia’s final rate meeting for 2023. It anticipated that movements in currency pairs, such as USD/JPY, will be subject to the oscillations in US yields and the USD/CNH. The latter, serving as a leading indicator. It expected to influence broader trends in foreign exchange and precious metals markets at the onset of the trading week.
With both markets and economists in unanimous agreement that the cash rate will be maintained at 4.35% later today, the RBA statement emerges as the exclusive source of potential volatility for the AUD/USD in relation to the interest rate decision.
RBA’s Shifting Stance: November Hawkish Bias and Market Expectations
In November, the Reserve Bank of Australia (RBA) appeared to temper its hawkish stance, signaling caution towards additional rate hikes. The statement’s ambiguity contrasted with October’s more assertive tone about potential tightening. Market reactions then suggested premature dovish expectations, countered by subsequent statements from Governor Bullock.
Today, a reiteration of the November hawkish bias is likely, but a return to an October-like stance is possible, given the absence of an expected cash rate increase.
Also Read: Australian Dollar Descends Toward Psychological Threshold
Focus remains on the RBA’s stance on inflation and the global economic outlook. Particularly the shift in sentiment towards future interest rates. The RBA may highlight the substantial undershoot in headline inflation or persistent stability in underlying measures. The rapid global market pricing for rate cuts, including in H2 2024 for Australia, may prompt the RBA to push back against the dovish trend, similar to the Reserve Bank of New Zealand’s response.
AUD/USD Technical Analysis: Recent Developments and Upside Potential
Analyzing the technical landscape of AUD/USD, the robust closure witnessed last Friday has been overshadowed by recent developments. As the pair experienced a retreat below downtrend resistance in the wake of a notable reversal in the US dollar and US bond yields on Monday.
Despite the disappointment for bullish stakeholders stemming from this reversal, the technical outlook remains favorable. Marked by the upward trends in both RSI and MACD indicators. Notably, AUD/USD encountered significant buying interest upon approaching the former support level at .6600. Given the close proximity of the 200-day moving average, a mere 20 pips lower. Those anticipating renewed upward momentum may consider this zone as a protective buffer against a more substantial reversal. Further substantial support is discernible at .6520.
On the upside, a successful breach and sustained position above the downtrend resistance could pave the way for levels such as .6720 and even .6900.
Key Focus Areas for Asian FX Traders: USD/CNH, Gold Indicators, and USD/JPY Dynamics
Beyond the Reserve Bank of Australia (RBA) meeting, Asian foreign exchange (FX) traders should closely monitor USD/CNH movements. Gold’s record high on Monday, followed by a retreat, acted as a leading indicator for Asian FX, notably USD/JPY.
While Tokyo’s inflation figures provide insight into Japan’s price pressures, historical trends suggest USD/JPY volatility tied to Bank of Japan decisions. Even inflation reports have limited impact. Highlighting the influence of CNH and US bond yields. Especially ahead of the pivotal US ISM services PMI release on Tuesday.
USD/JPY mirrored AUD/USD with a false break on Monday, reacting to a US yield reversal. The outcome hinges on the US services PMI, shaping expectations for the US rate outlook.
Chart-wise, USD/JPY’s decline stabilized near 146.30, a key downside level. Support may form around 146.00, with major support below 145.00. Upside targets include 147.50 and 148.40.
