AUD/USD retreats towards 0.7500 ahead of RBA

• AUD/USD consolidates the week-start gains around the multi-month high.
• Mixed clues, cautious optimism ahead of the key central bank events favored Aussie buyers of late.
• RBA’s forward guidance eyed amid hopes of dumping yield curve control, no rate change expected.

AUD/USD struggles to extend the previous day’s rebound from a one-week low, easing to 0.7515 amid the initial Asian session on the key Tuesday. In doing so, the Aussie pair seems to bear the burden of the pre-RBA mood amid cautious optimism in the market.

Having initially dropped on China’s downbeat official PMIs, AUD/USD benefited from firmer Caixin Manufacturing PMI from Beijing and mixed data at home during early Monday. Following that, optimism over the Sino-American trade deal and softer-than-previous US ISM Manufacturing PMI helped the AUD/USD buyers to keep the bounce off a one-week low. However, the cautious mood ahead of the Reserve Bank of Australia (RBA) monetary policy meeting challenges the quote of late.

Although China’s official PMIs portrayed the contraction in October activities, Caixin Manufacturing PMI offered a positive surprise and favored the AUD/USD prices. On the same line could be the US ISM Manufacturing PMI for October that eased below 61.1 prior readouts to 60.8, beating 60.6 market forecasts. The softer US data and firmer China figures also join mixed housing market data at home and Australia’s strong Commonwealth Bank PMI for October to favor AUD/USD recovery moves.

Additionally, comments from US Treasury Secretary Janet Yellen added to the market’s mild risk-on mood, The diplomat hinted that the US-China Phase One trade deal and reciprocal easing of tariffs may tame the inflation. The same highlights optimism towards reaching the much-awaited trade agreement among the world’s top two economies. Also favoring the risk-on mood could be US Treasury Secretary Yellen’s statements like, “I don’t think US economy is overheating.” Her comments on Inflation could be justified by the US inflation expectations as the 10-year breakeven inflation rate per the St. Louis Federal Reserve (FRED) data, dropped for the fourth consecutive day from levels last seen during August 2006 by the end of Monday’s North American trading. The same hints at the Fed’s cautious action during Wednesday’s meeting and favors the AUD/USD buyers.

It’s worth noting that the recent challenges to the global economic growth hints at a bit slower dialing back of the easy money policies across the globe and hence keep the AUD/USD bulls ahead of the key central bank meetings, including the Fed and Bank of England (BOE) decisions, on Wednesday and Thursday respectively. Furthermore, Australia’s opening up of the international borders and positive chatters over the US stimulus are some extra positive catalysts for the pair.

Amid these plays, US stocks remain remained firm around the record top whereas the US 10-year Treasury yields portrayed a sluggish start to the week. Further, the US Dollar Index (DXY) pared Friday’s heavy gains on Monday and helped the Aussie buyers too.

Looking forward, the AUD/USD traders will pay close attention to the RBA moves as the Aussie central bank indirectly has stopped yield curve controls and may formally accept the same, backed by the recent jump in the Aussie inflation data. However, RBA Government Philip Lowe earlier highlighted the need for the wage prices to remain firmer to push the central bank towards faster rate hikes, which in turn makes RBA forward guidance the key.

Read: Reserve Bank of Australia Preview: Reality check for Australian policymakers

Technical analysis

Having defied a downside break to the ascending support line from September 29, AUD/USD bulls struggle around the stated trend line near 0.7515 by the press time. Given the bullish MACD and firmer RSI, not overbought, the quote is expected to stay firmer, inching closer to the 200-DMA hurdle surrounding 0.7560. However, a three-month-old trend line resistance near 0.7565 will challenge any further advances amid nearly overbought RSI conditions. Meanwhile, the buyers’ inability to carry the rebound from a short-term key support line, around 0.7515 by the press time, will seek validation of a bearish impulse from August month’s peak of 0.7478 and the latest swing low close to 0.7450.