AUD/USD price forecast ahead of the RBA’s decision

The Reserve Bank of Australia (RBA) is the first central bank to announce its monetary policy decision this week. The AUD/USD currency pair looks bullish from a technical perspective, but fundamentals may weigh on the exchange rate. 

Currency traders prepare for a wild week ahead, as besides the Russia-Ukraine conflict, there are plenty of economic events to move markets. One of them is the RBA meeting, scheduled at the start of every new month.

Traders expect the RBA to keep the official cash rate unchanged, but there aren’t many reasons to be dovish. Inflation in Australia is high, and other central banks have already hiked or are preparing to hike rates. As such, the fundamental picture might not help the AUD/USD exchange rate.

How about the technical one?

The technical picture looks bullish

A double bottom pattern might be in place as the 0.70 level offered strong support. As such, the technical picture looks bullish, with 0.73 acting as the pattern’s neckline.

The measured move points to 0.7550, and a daily close above 0.73 would trigger more upside as investors focus on the measured move.

Fundamentals may weigh on the Aussie dollar

While the technical picture looks bullish, the fundamental one not so much. A currency pair reflects the value of one currency in terms of another.

Therefore, factors from both Australia and the United States contribute to the AUD/USD currency pair’s volatility. As such, the Fed is seen more hawkish than the RBA and will likely raise the rates before the RBA does.

The bigger the divergence between the two central banks’ monetary policy, the more significant the impact on the AUD/USD exchange rate will be. The risk is that the RBA will remain on hold at this week’s meeting, and the Fed will hike the federal funds rate in March – bearish developments for the AUD/USD exchange.

Moreover, if the Fed hikes half of a percentage, the gap between the two policies is even bigger.

All in all, AUD/USD has a bullish technical setup but a bearish fundamental one. As such, traders should take caution when opening positions on this market.