AUD/USD jumps above the 0.7400 mark, as the RBA keeps a hawkish tone, despite Covid-19 concerns in the country.
- AUD/USD climbs 40 pips after the RBA meeting.
- RBA announces it will continue tapering bond-buying after September.
- Market sentiment remains mixed because of the delta variant fears.
AUD/USD fundamental forecast: RBA and pandemic to weigh
Today, the Reserve Bank of Australia announced that it’d keep the cash rate target at 0.10. But why did AUD/USD jump 40 pips after the meeting?
Weekly asset purchases
Traders saw an opportunity when the RBA published that it’ll reduce the number of weekly asset purchases to 4 billion AUD. The current weekly purchases are at 5 billion AUD.
However, there is more to the story. Since July, Australia has had a strict lockdown over concerns of the COVID delta variant. This halted the local economic growth, and Australia’s bonds kept going lower.
Also, many investors speculated that the RBA would not decrease the weekly asset purchase. However, the opposite happened. So instead, the RBA kept its plan of cutting the weekly purchases to billion dollars a week at least until September. So, that’s how the pair soared to the new highs.
CDC fears and downbeat prints
AUD/USD bulls can slow down their pace because the Centers for Disease Control and Prevention defines the Delta variant as a more severe threat.
In addition, downbeat prints of US-Chinese PMIs, Australian housing data can also turn the bulls away.
Impact of the USD index
A key point to note is the direction of DXY. The USD index is trailing around 92 is a bit on the neutral side. However, at the start of the week, S&P 500 gains of 0.18% can be a positive sign for the DXY.
Following the first reaction to the RBA’s monetary policy announcement, AUD/USD traders will watch the risk catalyst for a fresh surge.
However, the road ahead is still uncertain. Because of the increasing number of Covid cases, China, Australia’s most excellent trading partner, has placed millions under lockdown.
If growth in the world’s second-largest economy slows, we could see the consequences in Australia.
If a softer-than-expected US non-farm payrolls report dampens Fed tapering bets, the AUD/USD could find some relief. However, a large miss could cause AUD-negative market sentiment.
AUD/USD technical analysis: key levels in action
As we mentioned earlier, the AUD/USD rose to 40 pips in a matter of an hour; however, will it be able to sustain this rise?
From a technical perspective, the more significant trend for AUD/USD appears to be pointing downward. A bearish crossover of the 50- and 200-day Simple Moving Averages (SMAs) suggests a negative tendency. Keep a watch on the 20-day SMA in the short run.
A breach above this line, accompanied by confirmation, may pave the way for a short-term push.
AUD/USD key support level is at 0.7290. If the pair falls below this level, it can further go down towards 0.7250.
On the upside, the prior high of 0.7408 serves as the first resistance for AUD/USD. If the bullish stance continues, we can see the pair going above 0.7450.