The AUD/USD price ticked higher on Monday morning as investors waited for the upcoming purchasing managers index (PMI), US non-farm payrolls (NFP), and the Reserve Bank of Australia (RBA) decision set for Tuesday. The pair is trading at 0.7722, which is a few pips above last week’s low of 0.7677.
RBA interest rate decision
This week’s biggest catalyst for the AUD/USD will be the RBA decision that will come out on Tuesday morning. Analysts expect the bank to leave interest rates unchanged at 0.10%.
Still, the focus will be on the bank’s asset purchase process, also known as quantitative easing (QE), and the actions the bank will take. While it is expected to leave the quantitative easing program intact, the committee members will start to deliberate on when to start winding down the program. In a recent statement, Governor Philip Lowe said that the bank will make a decision about the QE program in July.
The RBA, and other global central banks, are under intense pressure to start winding down some existing policies. Indeed, some like the Bank of Canada, Bank of England, and the Reserve Bank of New Zealand (RBNZ) have pointed to imminent tightening.
The RBA decision comes when the Australian economy is in a speedy recovery, helped by the high commodity prices and surging demand from China. Indeed, data published by China Logistics showed that the manufacturing and services PMIs remained above 50 in May, which is a signal that the sector is doing well.
Additionally, the RBA decision will come at a period when Melbourne and Victoria see more coronavirus cases. Indeed, the government has announced some lockdown measures in Victoria to slow the spread. This is notable because of the size of Victoria and the role it plays in the Australian economy.
In addition to the RBA decision, the AUD/USD pair will react to data like current account, business inventories, and manufacturing PMIs that will come out on Tuesday.
US dollar under pressure
The AUD/USD will also react to the happenings in the United States, which is expected to record better growth than other countries because of government spending. The focus will be on the latest non-farm payroll data.
Data compiled by Investing.com suggests that analysts expect the data to show that the economy added 650,000 jobs in May after it added 266k in April. They also see the unemployment rate falling from 6.1% in April to 5.9% in April. Wages are also expected to rise to 1.6%.
These numbers are important because of their impact on the Federal Reserve. Stronger employment data at a time when inflation is rising means that the Fed will also be under pressure to tighten.
The AUD/USD will also be moved by the progress on Joe Biden’s $6 trillion budget proposal and the ongoing debate on infrastructure.
The four-hour chart shows that the AUD/USD pair has formed a giant head and shoulders pattern whose neckline is at 0.7700.
The pattern has been forming since April this year. The pair has dropped below the 25-day and 50-day Exponential Moving Averages (EMA).
Therefore, the pair may break out lower in the coming months as investors attempt to move below 0.7600. However, a move above the right and left shoulders at 0.7818 will invalidate this pattern.