RBA preview: What to expect of AUD/USD?

The AUD/USD pair dipped below 0.75 handle ahead of the Reserve Bank of Australia (RBA) rate decision after the data showed Australia’s trade deficit widened and retail sales fell short of expectations.

RBA – Cautious but not spooked by Brexit

The Reserve Bank of Australia (RBA) is widely expected to keep the key policy rate unchanged. As per Westpac research team, “The RBA will not be so naïve as to think we have seen the last of ‘Brexit’-related risks but as the situation currently stands we do not think events are sufficient to ‘spook’ the Bank into an ‘emergency’ cut in July.”

Moreover, financial markets have stabilized from the post Brexit shock. Furthermore, AUD and Australian commodity prices are largely unchanged since June meeting. Westpac expects the Board to again leave rates unchanged. “While ‘Brexit’ will clearly figure in the Bank’s deliberations it looks unlikely to tip the balance on a decision”, Wespac report says.

Still markets are likely to scan the policy statement for clues regarding the next move in the rates. Investors would be interested to see if the bank sees a major threat to Australia from Brexit through key channels – Trade, financial condition and confidence.

AUD/USD Technical Levels

The pair dipped to a low of 0.7493 today before recovering slightly to trade around 0.7510 levels. Aussie rose for the fifth straight day on Monday and almost recovered the Brexit drop.

The immediate support is seen at 0.7490 (50% of 0.7835-0.7145 + 5-DMA), under which losses could be extended to 0.7450 (38.2% of 0.6827-0.7835) – 0.7423 (rising trend line support – drawn from May 30 low and June 16 low). Acceptance below the same would signal bullish invalidation and may yield 0.7304 (June 24 low).

On the higher side, a break above 0.7538 (Asian session high) would expose 0.7571 (61.8% of 0.7835-0.7145) – 0.7597 (23.6% of 0.6827-0.7835). A violation there would open doors for a rally to 0.7647 (June 24 high).