AUD/USD extends recovery towards 0.7100 on RBA’s cautious optimism

• AUD/USD refreshes intraday top, holds onto the previous day’s rebound from 2021 low.
• RBA matches wide forecast of keeping benchmark and asset purchase intact, cites moderate risk from Omicron.
• China trade numbers came in mixed, PBOC action, Japan stimulus hopes keep markets optimistic amid receding Omicron fears.
• Risk catalysts will be eyed for fresh impulse amid no major data/events.

AUD/USD picks up bids to refresh the daily high around 0.7065, up 0.25% intraday, following the Reserve Bank of Australia’s (RBA) monetary policy meeting decision on early Tuesday.

The RBA proves right the market expectations while keeping the benchmark rate unchanged at 0.1% and the weekly bond purchases of $4.0 billion intact until at least mid-February 2022. However, the Australian central bank’s comments line, “The omicron strain is a new source of uncertainty, but it is not expected to derail the recovery,” seems to have underpinned the AUD/USD pair’s latest run-up.

Read: RBA: Will not increase the cash rate until actual inflation is sustainably within the 2% to 3% target range

Earlier in the day, China released November’s trade numbers while Australia reported the third quarter (Q3) House Price Index. China Trade Balance eased below $82.75B forecasts to $71.72B while the Exports improved from 17.2% to 22.0%. However, notable was the jump in the Imports to 31.4% versus 19.5% market consensus and 20.6% previous readout. That said, Australia’s House Price Index declined on QoQ, to 5.0% from 6.7%, but rose past-16.8% prior to 21.7% level on YoY.

Other than the mixed data and cautiously optimistic RBA, the risk profile also favored AUD/USD buyers before the RBA. Risk appetite benefits from the PBOC’s RRR cut that propelled multi-billion dollars into the markets. On the same line is Japan’s record stimulus to battle the covid-linked economics losses that reach the final stage of the rollout.

Market sentiment also improves at the week’s start even as the US Treasury yields remained firmer. The reason could be linked to the ex-Fed group of central bankers’ readiness to extend easy money policies due to the South African covid strain, dubbed as Omicron. Also positive was the absence of more virus-led deaths compared to the rapid increase in the virus variant, as well as global scientists’ hopes of finding a cure to the fresh challenge.

Amid these plays, US 10-year Treasury yields seesaw around 1.45% whereas stock futures and Asia-Pacific equities print mild gains at the latest.

Looking forward, a light calendar will restrict AUD/USD moves but the corrective pullback may extend until qualitative catalysts challenge the bulls.

Technical analysis

AUD/USD bounces off November 2020 bottom amid oversold RSI conditions. However, the corrective pullback remains inside a five-week-old descending trend channel.

While August 2021 bottom around 0.7105 lures short-term buyers, a convergence of the 10-DMA and upper line of the stated channel, near 0.7125, becomes a tough nut to crack for AUD/USD bulls. Adding to the upside filter is September’s low surrounding 0.7170, a break of which will open doors for the long-run targeting to cross the 0.7200 threshold.

Meanwhile, a downside break of the 0.6990 level will make the AUD/USD pair vulnerable to June 2020 swing lows of 0.6775. During the fall, the 0.6900 and the 0.6800 thresholds may act as buffers.