As the US dollar remained well-supported on Monday in the wake of last Friday’s highly positive US jobs report, and equities continued to trade under heavy pressure on rising interest rate expectations, Australian dollar traders were bracing for the potential impact of a major central bank decision and key economic data to be released on Tuesday in Australia.
The Reserve Bank of Australia will release its cash rate decision and rate statement on Tuesday. While no substantial changes are expected to be made, and the cash rate is expected to remain unchanged at 1.50% as it has since August 2016, the RBA’s tone and outlook will likely have a significant impact on the Australian dollar. This is especially the case given the RBA’s recurring concerns about a strong Australian dollar. Also on Tuesday, Australia’s retail sales data (-0.2% expected) and trade balance figures (0.25B expected), both for December, will be released.
Amid this barrage of key Australian releases, AUD/USD has remained under pressure since its peak slightly more than a week ago above the key 0.8100 level. Since that peak, AUD/USD has fallen sharply back down below the key 0.8000 psychological level as the Australian dollar has pulled back and the US dollar has stabilized within its recent plunge. In the process of its breakdown, AUD/USD has also broken down below a steep uptrend line extending back to the December lows.
If the US dollar manages to remain supported off its long-term lows on rising US interest rate expectations, and the Australian dollar continues to falter amid Tuesday’s RBA decision and Australian economic data, a key downside level to watch is around the 0.7875 support area. Any significant breakdown below that support would extend the AUD/USD breakdown, potentially opening a bearish path towards the 0.7800 and 0.7700 near-term target levels.