AUD/USD: RBA interest rate decision preview

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 Aug 2, 2021
  • The AUD/USD pair has formed a bearish flag pattern.
  • It also formed a double-top pattern ahead of the RBA interest rate decision.
  • The bank is expected to leave interest rate unchanged and sound dovish.

The AUD/USD price retreated slightly as traders focused on the upcoming Reserve Bank of Australia (RBA) interest rate decision. The pair is trading at 0.7343, which is slightly below last week’s high of 0.7400.

RBA interest rate preview

The Australian central bank will publish its August interest rate decision on Tuesday. Analysts expect that the bank will sound dovish and make a U-turn on its asset purchases and yield curve control. The bank is expected to leave the interest rate unchanged at 0.1% on Tuesday. 

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According to Bloomberg, some analysts expect that the bank will go a step further and extend its three-year yield target to the November 2024 bond. Just a month ago, the bank sounded ready to start its tapering its asset purchases as the economy rebounded. 

However, the Australian economic situation has worsened since the last economic decision. For one, the number of Covid-19 cases has surged recently, pushing states to impose lockdown measures. The federal government has responded by offering financial support to the affected states. 

This, in turn, has led to weak business conditions. In a report, the country’s top banks like CBA and Westpac expect that the economy has lost between 200k and 300k jobs while the unemployment rate rose to 5.7%. According to ANZ, job advertisements declined by 0.5% in July.

The AUD/USD reacted to the relatively mild manufacturing data from Australia. Data by the Australia Industry Group (AIG) showed that the manufacturing index declined from 63.2 in June to 60.8 in July. Another figure by Markit showed that the PMI declined from 58.6 to 56.9. 

Still, these numbers show that the sector did well since a PMI figure of 50 and above is a sign of expansion. Also, the manufacturing sector is a relatively small part of the Australian economy.

AUD/USD technical analysis

AUD/USD
AUD/USD chart

The AUD/USD pair declined from last week’s high of 0.7413 to 0.7330. On the hourly chart, the pair has moved below the 25-day and 15-day moving averages. It also seems to be forming a bearish flag pattern that is shown in blue. The pair has also formed a double-top pattern. The two patterns are usually bearish signs. Therefore, the pair will likely resume the downward trend ahead of the RBA interest rate decision. If this happens, the next key support to watch will be 0.7300.

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