The Australian dollar against the US dollar (AUD/USD) remains uncertain ahead of the Reserve Bank of Australia’s (RBA) monetary policy meeting announcements. The outcome of the meeting will have a significant impact on the direction of the AUD/USD pair. The Australian central bank is expected to raise its interest rate by 0.25%, but the market is speculating that the bank may surprise with a 0.50% rate increase. In this article, we’ll take a closer look at the factors affecting the AUD/USD and what traders should expect in the coming days.
Economic Data: A Mix of Good and Bad News
The latest economic data from Australia was mixed, with the headline Trade Balance easing in December to 12,237 million from the expected 13,245 million. Exports growth also declined to -1.0% from 0.0%, while imports showed an improvement from -1.0% to 1.0%. The recent improvement in Australia-China ties has triggered trade optimism for AUD/USD pair traders, with a virtual meeting between the two countries’ trade ministers on February 6th yielding positive results.
US Recession Fears Rejected
In the US, comments from Treasury Secretary Janet Yellen and President Joe Biden have rejected fears of a US recession, causing S&P 500 Futures to print mild gains. However, hawkish concerns surrounding the Federal Reserve, backed by US data and Fed talks, are challenging the risk appetite and the AUD/USD bulls. Federal Reserve Bank of Atlanta President Raphael Bostic recently stated that the strong labor market means “we have to do a little more work.”
US 10-Year Treasury Bond Yields on the Rise
The US 10-year Treasury bond yields have been grinding higher around 3.63% after a two-day rebound from the monthly low. This, along with comments from Fed Chair Jerome Powell and President Biden, will be critical for AUD/USD traders to watch. If Powell reiterates a hawkish bias for the monetary policy, the AUD/USD could experience a further downside.
Technical Analysis: A Battle Between Bulls and Bears
The 50-DMA and 61.8% Fibonacci retracement level of the June-October 2022 downturn, around 0.6860, defend the AUD/USD bulls. However, bearish MACD signals and a sustained closing below the three-month-old previous support line, close to 0.6930, keep the Aussie bears hopeful.
In conclusion, the AUD/USD pair is currently trading in a state of uncertainty ahead of the Reserve Bank of Australia’s (RBA) monetary policy meeting announcement. The Aussie pair is being influenced by a range of factors such as the mixed data from Australia, improvement in the Aussie-China ties, and the recent comments rejecting fears of a US recession. While the recent improvement in the imports of Australia is defend the AUD/USD bulls, the hawkish concerns surrounding the Fed and US data are challenging the risk appetite and the AUD/USD bulls.
The RBA’s decision to justify the latest jump in inflation and economic challenges will be critical for the AUD/USD pair traders to watch. The central bank is expected to announce a 0.25% rate hike, but a surprise 0.50% rate lift cannot be ruled out. After the RBA action, Fed Chair Jerome Powell’s speech and US President Joe Biden’s State of the Union comments will also be closely watched by the AUD/USD pair traders.
From a technical perspective, the AUD/USD is being defended by a convergence of the 50-DMA and 61.8% Fibonacci retracement level around 0.6860. However, bearish MACD signals and a sustained closing below the three-month-old previous support line close to 0.6930 keep the Aussie bears hopeful. In conclusion, the RBA’s monetary policy meeting, Fed Chair Powell’s speech, and US President Biden’s State of the Union comments will be the key drivers for the AUD/USD pair in the coming days.