AUD/USD forecast: RBA interest rate decision preview

The Australian dollar continued its strong sell-off on Monday as traders repositioned for the first RBA decision of the year. AUD/USD also pulled back after Jerome Powell, the head of the Federal Reserve pushed back about fast rate cuts. The pair plunged to a low of 0.6488, its lowest level since November.

RBA rate decision preview

The bigges forex news of this week will be Tuesday’s interest rate decision by the Reserve Bank of Australia (RBA). This will be an important meeting because it comes a week after the Federal Reserve delivered a hawkish pause in its first decision of the year.

The meeting also comes at a time when Australia’s inflation is falling and China’s economy is having a strong meltdown. Data published last week revealed that Australia’s consumer inflation dropped to 4.3% in the fourth quarter. That decline was bigger than what economists were expecting.

Therefore, the estimate is that the RBA will leave interest rates unchanged at 4.35%, where it has left it in the past few meetings. The bank will also signal that rates will remain at this range for a few meetings as it watches the state of inflation. 

Most economists expect that the RBA will still cut interest rates later this year. Those at CBA and NAB expect the bank to start cutting rates in June. 

This meeting will also be important because it ushers a new era in the bank's policy schedule. Instead of holding eleven meetings every year, the bank will shift to eight, with each happening after every six weeks. The bank believes that this is an appropriate schedule because it allows the bank to have more data to process.

The AUD/USD exchange rate also tumbled after Jerome Powell insisted that the bank will not be in a hurry to cut interest rates. He said this in an interview with CBS, which came two days after the US published strong non-farm payroll (NFP) data. The Fed left interest rates unchanged in its first meeting of the year.

AUD/USD technical analysis

AUD/USD chart by TradingView

The AUD to USD pair has made a strong bearish breakout in the past two straight days. This breakout happened after the pair formed a bearish flag pattern on the daily chart. It has now moved below the lower side of the flag at 0.6525. 

The sell-off is still being supported by the 25-day and 50-day Exponential Moving Averages (EMA) while the Awesome Oscillator has moved below the neutral point. Therefore, at this stage, the outlook for the pair is bearish as the RBA and Fed diverge on rates. If this happens, the pair will likely tumble to the key support at 0.6400.