RBA preview - what to expect in AUD/USD?

AUD/USD has been sent lower below the 0.76 handle ahead of the RBA decision despite there being an air of bearishness around the US dollar on the back of continued poor data performances.

The Aussie is consolidated as we approach the Tokyo open after supply took the pair from 0.7615 highs yesterday and continuing lower throughout Europe and the US session despite the miss in the ISM manufacturing numbers and last week's GDP revisions with poor first estimates and revisions to previous quarters. You can read more on that here - Well, well, well ... Do you still think the Fed will hike rates?

For today, we await the RBA as the main event for the Asian session.

What to expect from the RBA?

Analysts at ANZ explained that they narrowly favour a rate cut at today’s RBA board meeting of 25bps.  "While last week’s inflation data were broadly in line with the RBA’s forecasts, they did highlight broadly-based weak inflationary pressures, " they explained, adding, "Indeed, underlying inflation is forecast to remain below the 2-3% target band for some time and below the 2.5% midpoint for an extended period."

Argument for the RBA to hold at 1.75%:

RBA: Not enough grounds to cut rates in August - Commerzbank

However, reasons to hold at 1.75% could be because there have not been any significant nor negative impacts to the Australian economy since the last meeting and that the economy is still on track for 3% GDP this year while there have been signs of a stable housing market and stability in the inflation rate, in fact beating expectations recently and back above 1.5%. Like the Fed, they perceive risks to the economy diminished for the time being while the initial shock and impact of the Brexit vote have somewhat dissolved in recent weeks.

Moreover:

Analysts at ANZ warned, however, that the tone from the July board minutes presented a more downbeat assessment of the domestic economy. In particular, jobs growth has slowed and underemployment is elevated. We also think the AUD will be a key factor, with the RBA repeatedly warning that the exchange rate could complicate the transition to non-mining led growth.

AUD/USD levels to monitor

The 26th July spike high gave out in early Asia at 0.7265 and spot now rests at 0.7520 support. On a rate cut, the Aussie could drop to below the 0.75 handle and through the May low that comes in at 0.7490. This level is significant because it has been historically a strong level for both support and resistance. A break there and below the 100 dma is at 0.7487 opens the 50 dma at 0.7436 and 90 pips lower lies the 200 dma. To the upside, 14th July high stands at 0.7659 ahead of the May highs of 0.7718.