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AUD/USD rally pulls back ahead of RBA decision

  • The Reserve Bank of Australia (RBA) will issue its interest rate decision and statement on Tuesday in Sydney (Monday night at 10:30 PM, US Eastern time).
  • The cash rate is expected to be held steady at a record low 1.50%, where it has remained since the last 25-basis-point cut in August 2016.
  • The RBA is currently confronting issues of low wage growth and lagging inflation that are helping pressure the central bank to keep interest rates low.
  • Earlier, Monday’s release of Australian retail sales data for December substantially disappointed expectations at a -0.1% decline against expectations of a 0.3% increase.
  • Since the beginning of the year, AUD/USD has risen sharply as the Australian dollar has climbed while the US dollar has weakened significantly on uncertainty over US President Trump’s fiscal policies and the Federal Reserve’s monetary policy.
  • The rally created a major double-bottom pattern around the 0.7150 support area.
  • The AUD/USD rally has since broken out above the key 0.7500 psychological level in mid-January, and has followed through to hit 0.7675-0.7700 resistance.
  • Monday saw a pullback from that resistance area ahead of the potentially pivotal RBA decision.
  • A continuation of the pullback on a more dovish RBA outlook should target 0.7500 short-term support.
  • A key breakout above 0.7675-0.7700 resistance on a more hawkish-leaning RBA outlook should see further major resistance around the 0.7800 level.

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