AUD/USD rallies to fresh two month highs, ahead of RBA interest rate decision

• AUD/USD reclaims the 0.7000 figure, a level last seen in June 13.
• Sentiment is mixed, but the AUD/USD got bolstered by a soft US dollar and the RBA’s decision.
• US ISM Manufacturing data stays in expansionary territory, though prices and new orders dropped.

The AUD/USD rises above the 0.7000 figure on a mixed sentiment session, spurred by reports that US House Speaker Pelosi could visit Taiwan. China’s reacted, warning that it would hold military exercises in the South China Sea from August 2 to 8, while some Chinese maritime administrations issued warnings prohibiting the entrance to the abovementioned sea.

The AUD/USD is trading at 0.7031 after reaching a daily low above the 50-day EMA at 0.6966, though bids around the low bolstered the Aussie to its daily high at 0.7047.

AUD/USD edges high, awaiting the RBA’s decision

European and US equities are fluctuating. Data from the US reinforced that a recession might be knocking on the door. However, the ISM Manufacturing PMI for July is still in expansionary territory, at 52.8, exceeding expectations, but trailed June’s 53. Timothy Fiore, chair of ISM, commented, “Panelists are now expressing concern about a softening in the economy,” which was reflected in New Orders, shrinking for the second month.

In the Asian session, Australia’s Manufacturing PMI hit 55.7 as estimated, but below June’s 56.2. In the meantime, Australia’s TD-MI Inflation Gauge rose by 1.2%, further reinforcing the need for higher rates.

Analysts at TD Securities said that most analysts expect the Reserve Bank of Australia (RBA) to hike the cash rate by 50 bps. “We anticipate the RBA’s end ’22 headline CPI forecast to be around 7.5% y/y, exceeding the RBA Governor’s 7% target with trimmed clocking in around 5.75-6%. This should support a 50bps Sept hike” They added that “a 50bps hike and similar RBA forecasts to ours would likely see the market view the meeting as dovish.”

Therefore, the AUD/USD might be under pressure, though broad US dollar weakness will keep the Australian dollar afloat. Nevertheless, China’s Caixin PMI rose by 50.4, lower than estimated, and it could put a lid on AUD/USD upward prices.

Over the weekend, the Minnesota Fed President, Neil Kashkari, said that he was surprised by the markets’ reaction that the Fed would soon begin to slow down the pace of rates while adding that higher core inflation readings would push him to back up another 75 bps hike.

Elsewhere, the US Dollar continues its slide, losing 0.47%, at 105.335, undermined by dropping US Treasury yields. The US 10-year benchmark note rate is at 2.616%, down three basis points. The aforementioned reasons bolstered the AUD/USD to fresh two-month highs.

What to watch

The Australian economic docket will feature the RBA Interest Rate Decision at 04:30 GMT. The US calendar will unveil the JOLTs Job Openings, and Fed speaking with Chicago Fed President Charles Evans will cross the wires.

AUD/USD Key Technical Levels