AUD Retreats As Dollar Recoups Losses Ahead of RBA Statement

The AUD is weakening somewhat ahead of the RBA’s policy announcement tomorrow. Activity in the forex market is minimal today, and markets are anticipated to stay calm while the United States and Canada are on vacation. The dollar is recouping some of its huge losses from last week, but the rising impetus stays modest. 

The AUD reaction could be wild, as it’s unclear if the RBA would stick to its tapering plan, postpone it, or backtrack and raise it. This week, three central banks would convene, with the RBA being the most essential to observe. In August, the central bank stated that it would stick to its tapering plan of reducing weekly asset purchases from AUD 5 billion to AUD 4 billion beginning in September.

However, the pandemic scenario has rapidly deteriorated since then, with the two largest states now dealing with a surge of COVID cases and businesses grappling with strict lockdowns. The RBA is now widely expected to decide to postpone tapering, with some analysts predicting an increase. However, it is still unclear which course the RBA will pursue at this time. 

Another one to watch is the European Central Bank, which will have to determine what to do with PEPP asset purchases in Q4. The rate of purchases had been much faster in Q2 and Q3. Given the steady recovery in the economy and rapid immunization, the ECB has room to restore the purchase pace to that of Q1. This would also pave the way for the conclusion of PEPP in March.

In terms of the BoC, it would most likely be a non-event, as policymakers have no pressing need to make any adjustments before the federal elections on September 20. Also, the Bank of Canada would most likely wait until October for new economic predictions before making any changes, including forward guidance.

AUD To Bounce Back Towards Resistance at Mid 0.7600

As the US dollar rebounds amid a worsening market tone, the AUDUSD was last seen trading around 0.7440, down 0.24 percent on the day. Breaking above the May downtrend at 0.7478/85 would be the final proof that the 2021 downtrend is over, allowing for a climb to 0.7499/7504 and eventually 0.7557. Expect a rally to the 0.7600/7640 resistance zone, which encompasses the 2021 top, 200-day average, and a string of price highs.

The breakthrough point of 0.7428 presently serves as a perfect support to keep the risks directly higher. A false breakout, on the other hand, would be confirmed below 0.7394/91, and most likely 0.7355/45, implying that the market is moving into a rangebound phase.

In terms of technical analysis, the AUDUSD pair climb from 0.7105 may extend to 0.7530 support turned resistance as long as 0.7394 minor support holds. A sustained break there would open the door for a retest of the 0.8006 high. However, a breach of minor support at 0.7394 will throw the near-term outlook into disarray and prompt a pullback.