AUD/USD on the verge of a bearish breakout to 0.7500

Written by: Crispus Nyaga
February 2, 2021
  • The AUD/USD pair is on the verge of a major bearish breakout after the RBA decision.
  • The bank left its interest rate unchanged and expanded its quantitative easing.
  • The pair will next react to the US nonfarm payrolls and Australia retail sales.

The AUD/USD price contracted today as forex investors digested the latest interest rate decision by the Reserve Bank of Australia (RBA). Similarly, the GBP/AUD and EUR/AUD rose after the decision.

AUD/USD price action

RBA interest rate decision

The RBA concluded its interest rate decision today and left its main interest rate unchanged at the ultralow level of 0.10%. This was in line with what most economists were expecting. The bank also left its yield curve control policy intact. With yield curve control, the bank is targeting the overall yield of the three-year bond to be 0.1%.

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The RBA also decided to increase its quantitative easing policy by more than A$100 billion. With this policy, the bank is helping lower the cost of government borrowing. Further, it left the term funding policy intact with the goal of lowering the cost of business and household borrowing.

The bank expects the economy to grow by 3.5% in 2021 and 2022 and return to its pre-pandemic level later this year,  Further, it expects inflation to remain below 2% for several years. Precisely, it expects it to be at 1.25% by end of the year. The bank said:

“The Board will not increase the cash rate until actual inflation is sustainably within the 2 to 3% target range. For this to occur, wages growth will have to be materially higher than it is currently. This will require significant gains in employment and a return to a tight labour market.”

Busy week ahead

For the rest of the week, the AUD/USD will react to several key catalysts. Tomorrow, Markit will publish the Australian and US services and composite PMI numbers. Economists believe that these will be worse than the strong manufacturing PMIs published yesterday. 

The RBA will also publish its chart pack while the bureau of statistics will publish the building approvals numbers.

On Thursday, the Aussie will react to the latest Australian trade figures followed by the December retail sales on Friday. The AUD/USD will also react to the FOMC interest rate decision data on Friday.

AUD/USD technical outlook

AUD/USD technical chart

In the RBA rate decision preview article yesterday, I predicted that the AUD/USD would break-out lower and test the important support at 0.7586. It did this today. 

On the four-hour chart, the price moved below the 25-day and 50-day exponential moving averages (EMAs) while the signal and main lines of the MACD are below the neutral line. Therefore, like the EUR/USD pair, there is a likelihood that the Aussie is about to have a sharper breakout to 0.7500.