AUD/USD: Aussie pressured ahead of RBA interest rate decision

Written by: Crispus Nyaga
February 1, 2021
  • The AUD/USD is under pressure as traders wait for the RBA interest rate decision.
  • Traders expect the bank to leave its interest rate and QE unchanged.
  • The decision will come a day after the country released strong PMI data.

The AUD/USD is down for the second consecutive day ahead of the first Reserve Bank of Australia (RBA) interest rate decision set for tomorrow. It is trading at 0.7623, which is 2.5% below the year-to-date high of 0.7812.

AUD/USD
Australian dollar ahead of RBA decision

RBA interest rate preview

The RBA started its first meeting of the year today and is set to release its final decision on Tuesday at 03:30 GMT followed by a press conference. 

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Economists believe that the bank will do what other central banks did in the past two weeks. It will likely leave interest rate unchanged at 0.10% and then boost its economic forecast. 

They also expect that the bank will leave its $100 billion quantitative easing and the yield curve control intact. The goal of the QE, yield curve control, and term funding facility is to lower the overall cost of government, business, and households low.

The RBA decision comes at an important period for the Australian economy. In a statement yesterday, Prime Minister Scott Morrison said that the government would start tightening its policy on spending and stimulus. He said:

“Our task now is to continue our economic recovery by sticking to our economic recovery plan and, importantly, exercising the fiscal discipline necessary to ensure that we do not overburden future generations and continue to spend taxpayers’ money wisely.”

Meanwhile, the AUD/USD is also reacting to the impressive manufacturing PMI data from Australia. According to the Australia Industry Group (AIG) and Markit, the PMI rose to 55.3 and 57.2, respectively. Elsewhere, in China, the country’s biggest trading partner, the PMI dropped to 51.3. Still, it is above 50, which is a sign that the economy is on a recovery path.

The AUD/USD is also falling because of the overall strong dollar as forex investors rush to safe-havens.

AUD/USD technical outlook

AUD/USD
AUD/USD technical chart

The AUD/USD price has been rallying in the past few months and reached a high of 0.7813 in January. Since then, it has formed a relatively narrow channel that’s shown in black. Also, the Relative Strength Index (RSI) has started to form a bearish divergence pattern. 

Therefore, the pair will likely continue falling as bears target the next support level at 0.7450, which is the lowest level on December 20. Still, currency pairs tend to be highly volatile before and after a central bank’s decision. Therefore, use a risk management tool provided by your forex broker to minimise this risk.