AUD/USD drops below 0.6770 as RBA keeps policy unchanged

• AUD/USD has sensed selling pressure as the RBA has kept rates unchanged at 3.6%.
• The street was divided between a steady RBA policy and an 11^th consecutive rate hike.
• The upside in the USD Index looks capped as investors are anticipating an early pause in the Fed’s policy-tightening spell.

The AUD/USD pair has slipped below 0.6770 as the Reserve Bank of Australia (RBA) has broken the policy-tightening spell after hiking rates straight 10 times. RBA Governor Philip Lowe has kept the Official Cash Rate (OCR) unchanged at 3.6%.  The street was divided over the interest rate decision as Australia’s monthly Consumer Price Index (CPI) indicator has already conveyed that inflation has softened quickly in the past two months to 6.8% from the peak of 8.4% registered in December. It seems that RBA Governor Philip Lowe is highly optimistic about further softening in Australian inflation.

On Monday, the Australian Dollar remained in action after the release of the downbeat Caixin Manufacturing PMI data. The economic data has landed at 50.0, lower than the consensus of 51.7 and the former release of 51.5. The Chinese economy is struggling in reviving growth despite dismantling pandemic controls and favoring monetary and non-monetary measures. It is worth noting that Australia is the leading trading partner of China and weak manufacturing activities have a severe impact on the Australian Dollar.

Meanwhile, the US Dollar Index (DXY) is facing barricades after a recovery move to near 102.20. The upside in the USD Index looks capped as investors are anticipating an early pause in the Federal Reserve’s (Fed) policy-tightening spell. Deepening fears of a recession in the United States economy led by five straight ISM Manufacturing PMI contractions are advocating for a pause in the restrictive monetary policy regime. 

This week, the US Automatic Data Processing (ADP) Employment Change (March) data will be keenly watched, which is scheduled for Wednesday. The economic data is seen lower at 205K vs. the prior release of 242K. Fewer additions of fresh labor could add to indicators favoring a pause in the rate-hiking spell.