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Rally Runs Out of Steam Ahead of RBA

The outlook of the AUD/USD pair is still bullish but a retest of the support at 0.6571 (April 28 low) cannot be ruled out.

  • Set a buy-stop at 0.6633 and a take-profit at 0.6700.
  • Add a stop-loss at 0.6572.
  • Timeline: 1-2 days.
  • Set a sell-stop at 0.6592 and take-profit at 0.6500.
  • Add a stop-loss at 0.6672.

The AUD/USD strong comeback was halted last week by the mixed US non-farm payrolls (NFP) data. After rising to a high of 0.6638 on Friday, the pair pulled back to 0.6600. It remains significantly higher than last week’s low of 0.6457 ahead of key events and data from Australia.

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The US published a mixed jobs report that led some investors to price in another rate hike in June. In a report, the Bureau of Labor Statistics (BLS) said that the economy created over 339k jobs in May, defying analysts’ estimates. The report was also higher than what the economy created in the previous month.

A case for at least one more hike can be made considering the previous personal consumer expenditure (PCE) data was higher than expectations. The number, which is the Fed’s most favorite inflation number came in at 4.7%, higher than the Fed’s target of 2.0%.

The biggest catalyst for the AUD/USD pair will be the outcome of the Reserve Bank of Australia (RBA) interest rate decision scheduled for Tuesday. This meeting will come a few days after the RBA governor warned that fighting inflation will be a tough call as long as wages continue rising in the country.

Analysts are torn about what the RBA will do in this meeting. Most analysts polled by Reuters expect that the RBA will leave interest rates unchanged at 3.85% in this meeting. It previously lifted rates by 25 basis points in its meeting in June. Other analysts expect that the RBA will decide to deliver another 0.25% rate hike in this meeting.

The other data to watch will be the upcoming Australia GDP numbers set for Wednesday. Based on the previous estimate, analysts believe that the country’s economy expanded by 2.7% in Q1.

The AUD/USD pair pulled back slightly after hitting a high of 0.6633 on Friday. On the 4H chart, this price was at the 50% retracement point. The MACD lines and the histogram have moved above the neutral point while the 25-period and 50-period moving averages have made a bullish crossover.

Therefore, the outlook of the pair is still bullish but a retest of the support at 0.6571 (April 28 low) cannot be ruled out. More upside will be confirmed if the price moves above the key resistance point at 0.6633. If this happens, the next reference level to watch will be the 61.8% retracement at 0.6675.

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