AUD/USD: RBA rate decision preview and implications for Aussie

Written by: Crispus Nyaga
May 3, 2021
  • The AUD/USD pair has tilted upwards ahead of this week’s RBA decision.
  • The RBA is expected to leave interest rates and quantitative easing unchanged.
  • The pair will likely break out lower in the near term.

The AUD/USD price is tilting upwards ahead of the latest Reserve Bank of Australia (RBA) interest rate decision that is scheduled for Tuesday this week. It is trading at 0.7733, which is slightly above last week’s low of 0.7695. 

AUD/USD
AUD/USD price action

RBA interest rate decision

Recent economic data from Australia have been positive. The country is adding thousands of jobs every month while retail sales have been strong. 

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Also, the manufacturing and services sector has continued doing well as the country reopens. For example, data released by Markit and Australia Industry Group (AIG) showed that the manufacturing PMI rose to 59.7 and 61.7, respectively in April. A PMI figure of 50 and above is usually a sign of expansion.

This growth has been helped by the reopening and surging demand for its products. Indeed, the prices of some of its key commodities like iron ore and coal have risen to a multi-year high. In fact, the only challenge is the ongoing challenges in the shipping industry. Most importantly, Australia’s housing sector has done well, with house prices rising to the highest level in years.

It is against this backdrop that the RBA will conclude its meeting on Tuesday. Analysts at most CFD and forex brokers expect the bank will leave interest rates at 0.10% where they have been in the past few months. The bank will also extend its yield curve control and quantitative easing programs. Through QE, the bank is in the second phase of a $78 billion asset purchase program.

Most importantly, many analysts expect the bank to defer whether to roll over the yield target maturity from April 2024 to November 2024. In a note, analysts at Bloomberg said:

“The size of the bond purchase program is likely to be affirmed, amid a potential reduction in issuance. An early shift in the three-year bond target to the November 2024 note remains a live risk.”

The AUD/USD will likely rise if the RBA comes out with a hawkish interest rate decision and vice versa. This is notable since the Fed has already hinted that it won’t hike rates soon.

AUD/USD technical forecast

AUD/USD
AUD/USD technical chart

The four-hour chart shows that the AUD/USD pair has bounced back after falling sharply last Friday. The pair is slightly above the lower side of the Donchian Channels and is slightly below the 25-day moving average. It is also between the important support and resistance levels at 0.7700 and 0.7817. Therefore, the pair will likely resume the downward trend after the RBA decision. This action will be validated if it manages to move below the support at 0.7700.