AUD/USD solid, meandering around 0.6800 ahead of the RBA's decision

• AUD/USD is registering solid gains amidst a dismal market sentiment.
• Softer than estimated US employment figures pushed the Federal funds rate expectations lower than previously.
• Based on data, TDS Securities Analysts commented that the RBA might hike 50 bps.

The AUD/USD recovers some ground after recording fresh two-month lows during the last week, amid a negative market sentiment trading session, with US equities being closed in the observance of Labor day, while European stocks are trading in the red. Factors like Europe’s energy crisis, alongside high inflation, added to the risks of a global economy.

The AUD/USD opened the week near the session’s lows, around 0.6770s, but edged higher and exchanging hands around the 0.6800 figure at the time of writing.

Last Friday’s US employment report exceeded estimates, but downward revisions on the previous two months, easied expectations of a Federal Reserve 75 bps rate hike. Nonfarm Payrolls came at 315K vs. 298K estimated, while the unemployment rate was 3.7%. That said, Federal Funds futures lost 3.7 bps on Friday, to 63.9 bps to tightening, right in the middle of 50-75 bps.

Meanwhile, the US Dollar Index records decent gains of 0.16%, at 109.779, capped by a sour sentiment.

AUD/USD to edge higher on the RBA 50 bps hike expected

On Tuesday, the Reserve Bank of Australia is expected to hike rates by 50 bps as they continue to fight to tame inflation. Analysts at TD Securities forecast a 50 bps rate hike on the thesis that the labor market remains tight, a solid consumer spending, and price pressures spread wide.

“A 50bps hike is consistent with prior RBA hikes and in line with firm data outcomes. Of more importance is the language accompanying a 50bps hike. Does the RBA strengthen its language/resolve to get on top of inflation by removing ‘even keel’ or ‘path to achieve this balance is a narrow one and clouded in uncertainty’. Or does the RBA signal a more prolonged hiking cycle but highlights a step down in the pace of rate hikes? We favour the 2nd option.”

What to watch

Australia’s economic docket will feature the RBA’s monetary policy decision, alongside the Current Account Balance, Exports, and the Real GDP. The US calendar will feature Fed speakers with Cleveland President Loretta Mester on Wednesday and Jerome Powell’s speech on Thursday. Furthermore, unemployment claims for the week ending on September 2, alongside the S&P Global and ISM Services PMI, would be eyed by investors, looking for clues of how the US economy fares.

AUD/USD Key Technical Levels