Australia

Two RBA speeches and a monetary policy decision along with updated RBA forecasts are the highlights of the week for AUD/USD traders on the domestic front. Although risk-off tones and an ISM services report could prove to be the bigger drivers.

AUD/USD may have snapped a 9-day losing streak, but it is on track for a bearish outside month. Which tend to be followed by further bearish months, looking at recent history.

I suspect we’ve entered a phase where politically-driven sentiment carries more weight than domestic data for AUD/USD. And with the VIX rising alongside political uncertainty, volatility could favour bears over the coming months as we head towards the US elections.

Australian unemployment may have risen, but so did all other key metrics including job growth and the participation rate. And that has likely provided a floor for AUD/USD and AUD/JPY over the near term.

China's third plenum, New Zealand inflation and the Australian labour force report are potential drivers for AUD/USD this week.

Jerome Powell's testimony, RBA head of economics speech and US CPI all have the potential to drive AUD/USD next week. But looking at the strength of the Aussie's breakout, dips may look appealing to bulls.

Australia's uncomfortably high inflation report last week means there is a real risk the RBA could hike rates by 25 bp at their August meeting.

A relatively hawkish meeting from the RBA has supported AUD over the past 24 hours, sent AUD/JPY to an 11-year high and made next week's inflation report the more important.

The prospects of a weaker US dollar are growing which brings a potential breakout on the cards for AUD/USD, although it has some tough levels to crack first.

The Australian dollar handed back all of its pre-RBA gains, which was trying to notch up a fifth consecutive bullish day on anticipation of a more hawkish RBA. Yet the statement was not overly hawkish and Governor Bullock said the RBA “believe rates are at the right level to get inflation back to target”. Inflation was revised higher to show inflation falling back to target at a slower pace and the RBA remain “vigilant” to upside risks.

The Reserve Bank of Australia (RBA) kept Australia’s cash rate unchanged at 4.35% in May but refrained from increasing its longer-term underlying inflation forecasts, limiting the risk of a near-term interest rate hike.

Tuesday looms as a potential make-or-break session for Australia’s ASX 200 with futures sitting at a key technical level on the charts ahead of the RBA interest rate decision. One saving grace may be the continued rebound in iron ore futures in Singapore.

The RBA will announce their cash rate decision on Tuesday alongside their quarterly SOMP with updated staff forecasts. And that can quickly reshape expectations for the rest of the year and move AUD/USD accordingly.

AUD/USD notched up a 5-day rally against the US dollar despite the hotter PCE inflation report for the US on Friday. Yet resistance levels nearby suggest it may be due a pullback.

Whilst it appears that tensions in the Middle East have receded, headline risks remain a threat that traders need to keep in mind this week. And if sentiment is allowed to recover, economic data such as the key inflation reports for Australia and the US will be allowed to make their mark on AUD/USD.

AUD/USD traders will keep an eye on NZ inflation figures next week to see if disinflationary forces are picking up pace, in hopes that it will provide a lead for Australia. But if Thursday's AU employment report continues to knock out decent figures, then an RBA cut remains to be a distant hope for the future.

Due to the shorter trading week, we take a look at how AUD/USD has performed around Easter over the past 30 years.