AUD/USD pressured ahead of the RBA interest rate decision

By: Crispus Nyaga
Crispus Nyaga
Crispus is an active trader, where he is followed and copied at Capital.com. He lives in Nairobi with his… read more.
on Mar 1, 2021
  • The AUD/USD pair is under intense pressure ahead of the RBA decision.
  • The bank doubled its daily bond purchases on Monday.
  • The Australian manufacturing sector is expanding.

The AUD/USD price is bouncing back ahead of the second Reserve Bank of Australia (RBA) interest rate decision. The pair is trading at 0.7725, which is above the intraday low of 0.7690.

AUD/USD
AUD/USD price action

RBA decision ahead

The RBA will deliver its second interest rate decision of the year tomorrow. Economists expect that the bank will leave its headline interest rate unchanged at 0.10%. They also see it extending its yield curve control and its asset purchasing programs unchanged. 

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The decision comes at a time when the bank has doubled its daily bond purchases to A$4 billion. Also, it comes at a period when analysts at most banks and forex brokers are focusing on the latest bond yields in the US and Australia. 

Today, the ten-year Australian bond yields dropped to 1.61% from 1.72%. This performance was relatively lower than last week’s high of 1.95%. The spread between the US and Australian yields has helped push the AUD/USD pair higher. In a note, an analyst told AFR:

“The issue for the RBA is the relative size of the sell-off in Australia and what that might mean for the AUD. Today’s action is about the RBA signalling it will act forcefully against too great a widening in relative yield levels.”

Meanwhile, data released today showed that the Australian economy is on a recovery path. According to the Australian Industry Group (AIG), the manufacturing PMI increased from 55.3 in January to 55.8 in February. And according to Markit, the PMI dropped from 57.2 to 56.9. A PMI figure of 50 and above is a sign that the industry is doing well.

However, according to China Logistics and Markit, the manufacturing PMI declined to slightly above 50.0. The lackluster performance was mostly because of the week-long Lunar new year celebrations. Historically, many manufacturers reduce their output during this period.

In addition to the RBA rate decision, the AUD/USD will react to the latest building approvals and private house approvals that will come out tomorrow. It is also reacting to the happenings in the United States, where the House of Representatives passed a $1.9 trillion stimulus package.

AUD/USD technical outlook

USD/CHF
AUD/USD technical chart

The AUD/USD price rose to an intraday low of 0.7775 and then pared back some of these gains to the current 0.7730. On the four-hour chart, the price is along the ascending trendline that connects the lowest levels from November. It is also moving below the 25-day and 15-day exponential moving averages and the important resistance at 0.7820. It has also moved below the oversold level. Therefore, another decline below this price will be extremely bearish for the pair.

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