AUD/USD nearly 1.5% up from Friday’s 19-month lows as highly anticipated RBA policy announcement looms

• AUD/USD is on course for its best one-day rally since June 2021 and is more than 1.5% above Friday lows.
• The pair is trading in 0.7060s, up about 1.1% ahead of a highly anticipated RBA policy announcement.
• The focus will then switch to US data for the rest of the week, culminating in Friday’s official jobs report.

A positive start to the week, as far as global equity markets are concerned, and profit-taking following last week’s hawkish Fed policy announcement induced surge have seen the US dollar turn sharply lower on Monday. Stronger than expected January Chicago PMI figures and commentary from Fed policymakers which broadly stuck to the bank’s new hawkish script was unable to turn the tide for the US dollar. The Aussie has been the major G10 beneficiary of buck weakness as focus turns to Tuesday’s RBA monetary policy announcement.

AUD/USD has rallied more than 1.1% on Monday to the 0.7060s and is on course for its best one-day performance since June 2021, putting the pair now nearly 1.5% above the sub-0.6970 19-month lows it hit last Friday. Aussie traders will be closely scrutinized the upcoming RBA meeting with regards to 1) its decision on QE and 2) its interest rate guidance. Regarding the former, consensus expectations are for the bank to ax bond-buying in its entirety and regarding the rate guidance, markets expect some pivot towards admitting that the conditions for a rate hike could be met in 2022. However, the scope for the RBA to hawkishly surprise the market, which is pricing in a full 25bps rate hike by the end of H2 2022, is somewhat limited.

That may limit any post-“hawkish RBA policy shift” gains in AUD/USD to underneath resistance in the 0.7100 area. Indeed, any rally past these levels might be seen by US dollar bulls anticipating inflationary and tight US labour market numbers on Friday as a good short entry point. As the threat of a 50bps move by the Fed in March hangs over the market’s head, FX markets are likely to be even more volatile to US employment and labour market data in the coming weeks than usual.