AUD/USD ticks lower ahead of RBA interest rate decision

AUD/USD ticks lower ahead of RBA interest rate decision
Written by:
Crispus Nyaga
November 2, 2020
  • The AUD/USD pair is down slightly as traders wait for tomorrow's RBA interest rate decision.
  • Data from the Australian Industry Group (AIG) showed that manufacturing index rose from 46.7 to 56.3.
  • Australia also released strong building approvals numbers.

The AUD/USD price is down by 0.20% today as traders react to the strong economic data from Australia and the upcoming US general election. It is also waiting for tomorrow’s Reserve Bank of Australia (RBA) interest rate decision. The pair is trading at 0.7015, which is the lowest it has been since July this year.

AUD/USD falls in reaction to manufacturing data

Australia manufacturing sector steady

The manufacturing sector is relatively small in Australia. It employs more than 869k people in the country. That is substantially small number considering that Australia has more than 12.5 million people in employment. Nonetheless, it is an important sector that supports millions of jobs in the services industry.

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The manufacturing sector did relatively well in October, according to the latest numbers from Markit and the Australian Industry Group (AIG). Data from AIG showed that the manufacturing index soared from 46.7 in September to 56.3 in October. That made it the best number since October 2018.

Meanwhile, according to Markit, the manufacturing PMI declined from 55.4 in September to 54.2 in October. Still, the sector is in an expansion zone since it is above 50.

In its report, Markit said that the strength of the sector was mostly because of an increase in new orders, which led to higher production volumes. Inflows for new orders rose for the fourth straight month and higher demand for inputs. Also, manufacturers were optimistic about the next 12 months, which pushed the business confidence to the highest level since February. In a statement, Bernard Aw of Markit said:

“That said, longer-term prospects remained upbeat as Australian goods producers expect a further easing of coronavirus restrictions and government’s stimulus spending on infrastructure spending to drive output higher over the coming year.”

Other economic numbers from Australia were also encouraging. The country’s job advertisements rose by 9.4% in September, which was better than the previous 8.3%. Building approvals, which is an important gauge of the economy, rose by 15.4% after falling by 1.6% in the previous month. Private home approvals rose by 9.7%.

The AUD/USD is falling because investors are rushing to safety ahead of the US election and as countries start implementing new restrictions.

AUD/USD technical outlook

AUD/USD technical chart

A look at the daily chart shows that the AUD/USD is at important support. The current price of 0.7015 is the highest it was in January and June. This price is also the neckline of the head and shoulders pattern. Also, it is below the 15-day and 25-day exponential moving averages while the Relative Strength Index (RSI) is in a downward trend. Therefore, in the near term, I suspect that the downward trend will continue as bears aim for the support at 0.7000.