AUD/USD grinds beneath 0.6730 hurdle ahead of RBA Interest Rate Decision, US PMI

• AUD/USD defends Monday’s rebound from three-week low, edges higher after rising the most in 13 days.
• China stimulus, risk-on mood allow Aussie pair to remain firmer despite mixed data at home.
• US Dollar Index remains strong despite greenback’s weakness versus Antipodeans.
• RBA’s 0.25% rate hike is a close call after the last pause to rate hike trajectory.

AUD/USD portrays the typical pre-event inaction around 0.6715-20 during early Tuesday morning in Asia as the Aussie traders await the Reserve Bank of Australia’s (RBA) Interest Rate Decision with mixed feelings. That said, the presence of China Caixn Manufacturing for July and the US ISM Manufacturing PMI, as well as final prints of July’s S&P Global PMIs, also populate the economic calendar and prod the Aussie pair’s week-start recovery from the lowest level in three weeks.

On Monday, China State Council unveiled a slew of stimulus measures to conserve and boost consumption, which in turn fuelled the market’s risk-on mood during early Monday. Adding to that was the improvement in China's official PMI. That said, China’s official NBS Manufacturing PMI edges higher to 49.3 versus 49.2 expected and 49.0 prior but the Non-Manufacturing PMI eases to 51.5 from 53.2 prior.

It’s worth noting that the receding fears of the higher rates at the major central banks and the market’s preparations for the RBA’s Interest Rate hike also allowed the AUD/USD pair to begin the key week on a front foot despite mixed data.

Australia’s TD Securities Inflation rises to 0.8% MoM for July versus 0.1% previous readings while the yearly figures drop to 5.4% YoY from 5.7% marked in June. Elsewhere, Australia’s Private Sector Credit softens to 0.2% and 5.5% per the MoM and YoY basis in June compared to 0.4% and 6.2% respective priors.

On the other hand, Dallas Fed Manufacturing Business Index improves to -20.0 for July from -23.2 prior versus -26.3 expected whereas Chicago PMI rose to 42.8 from 41.5 prior versus 43.0 market forecasts. It should be noted that Friday’s softer prints of US inflation clues and the weekend comments from Minneapolis Fed President Neel Kashkari’s criticism of higher interest rates also exerted downside pressure on the greenback versus the Antipodeans even if the US Dollar Index managed to remain firmer on the day.

It should be noted that the latest release of the Federal Reserve (Fed) Loan Survey and the pre-RBA caution prod the AUD/USD bulls. That said, the Fed’s quarterly Senior Loan Officer Opinion Survey (SLOOS) US banks reported tighter credit standards and weaker loan demand during the second quarter (Q2 2023).

Amid these plays, Wall Street closed on the positive side and the US Treasury bond yields retreated.

Looking forward, China’s Caixin Manufacturing PMI for July and the Aussie housing data may entertain the AUD/USD pair traders ahead of the key RBA Interest Rate Decision. Analysts at the ANZ said ahead of the event that they expect the RBA to keep rates unchanged at 4.10%. Inflation is coming off faster than the RBA expected, there are clear signs the household sector is cutting back and the global backdrop has improved recently. The ANZ report also highlights the tight labor market but suggests the RBA would see the combination of moderating inflation and a low unemployment rate as positive. 

Also read: RBA Preview: Forecasts from 10 major banks, decision looks like a close call

Technical analysis

A convergence of the previous support line from May 31 and the 200-DMA, around 0.6730-35 by the press time, restricts the short-term AUD/USD upside.