AUD/USD nosedives 40 pips to 0.6650 on RBA inaction

• AUD/USD takes offers to reverse early-day gains, prod three-day uptrend, after RBA’s dovish surprise.
• RBA stays away from rate hike after two consecutive hawkish surprises, keeps benchmark rate unchanged at 4.10%.
• Yield curve inversion renews recession fears and exerts additional downside pressure on Aussie pair.
• Updates about US-China ties will be important for intraday directions amid US holiday, Treasury Secretary Yellen’s Beijing visit.

AUD/USD aptly portrays the market’s disappointment with the Reserve Bank of Australia’s (RBA) no rate hike decision on early Tuesday as it slumped nearly 40 pips within a minute of the Interest Rate Decision to 0.6644, pressured around 0.6650 at the latest.

After offering two consecutive hawkish surprises, the Aussie central bank unveils a dovish surprise while keeping the benchmark interest rate unchanged at 4.10%, versus market expectations of rolling out the third rate lift of 25 basis points (bps).

Also read: RBA: Any tightening will depend upon how the economy and inflation evolve

Not only the RBA-inflicted disappointment but the looming recession woes, signaled via the inversion of the US Treasury bond yields curve, also weigh on the AUD/USD prices. That said, the inversion between the US 10-year and two-year Treasury bond yields jumped to a fresh high since 1981 and renewed recession woes. “The yield curve briefly inverted to 42-year lows Monday as investors increasingly expect the Fed to raise its benchmark borrowing rates to keep inflation in check,” said Reuters after the US two-year Treasury bond yields dropped to 4.85% while the 10-year counterpart fell to 3.78%. It’s worth noting that both these benchmark yields ended Monday’s trading around 4.93% and 3.86% respectively.

It should be noted, however, that the downbeat US data and the holiday in the world’s largest economy, the US, prod the AUD/USD pair sellers. On Monday, US ISM Manufacturing PMI for June dropped to the lowest level in three years, as well as stayed below the 50.0 level for the seventh consecutive month, as it marked 46.0 figure versus 47.2 expected and 46.9 prior. Further, S&P Global Manufacturing PMI for June confirmed 46.3 figure, the lowest in five months, whereas the Construction Spending improved 0.9% MoM for May, versus 0.5% expected and 0.4% previous readouts.

Furthermore, anxiety surrounding the US-China ties escalates and weighs on the AUD/USD price as US Treasury Secretary Janet Yellen is in Beijing. Earlier in the day, US Treasury Department said, per Reuters, “Treasury Secretary Janet Yellen had a 'frank and productive' discussion today with China's Ambassador.” The news also mentioned that US Treasury Secretary Yellen raised issues of concern while also conveying the importance of the two countries working together.

Against this backdrop, S&P500 Futures retreated even as Wall Street managed to post minor gains whereas US two-year Treasury bond yields rose to 4.93% while the 10-year counterpart printed mild gains around 3.86% by the end of Monday’s North American trading session.

Having witnessed the initial market reaction to the RBA’s status quo, the AUD/USD pair traders should pay attention to the risk catalysts for clear directions amid the US holiday and light calendar elsewhere.

Technical analysis

A clear upside break of the 0.6690-95 resistance confluence comprising the 100 and 200 Exponential Moving Averages (EMAs), quickly followed by the 0.6700 round figure, becomes necessary for the AUD/USD bulls to keep the reins. Meanwhile, the Aussie pair sellers need validation from a 12-day-old descending resistance line, now support around 0.6810.