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Australian Dollar Forecast: AUD/USD Awaits RBA Decision

Australian Dollar Forecast: AUD/USD Awaits RBA Decision

Justin McQueen,
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Australian Dollar Analysis and Talking Points

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All eyes will be on the upcoming RBA monetary policy decision with little doubt that the Bank will continue to tighten monetary policy. However, the key question is whether the Bank will opt for a 25bps or 40bps hike. That said, with growth remaining strong, as shown in the recent Q1 GDP report and terms of trade at a record, this would argue for a 40bps hike at this week’s policy meeting. As it stands, money markets are pricing 30bps worth of tightening, therefore, should the RBA hike by 40bps to 0.75%, this would likely propel the Aussie higher amid a hawkish surprise. Alongside this, the accompanying statement will also be key for traders, with regard to moving rates to neutral territory, given that markets see the cash rate at 2.75% by the end of the year.

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Money Markets Sees 75% Probability of a 40bps Hike

Source: Refinitiv

Elsewhere, the Australian Dollar has benefitted from a lift in risk sentiment with US futures up over 1% as Beijing announced that they would be easing Covid restrictions. Meanwhile, talk of possible tariff relief on Chinese goods has also improved the outlook for the antipodean currency. Taking a look at the chart, key resistance is situated at 0.7250-70 where the 200DMA resides, while support resides at 0.7140-50.

AUD/USD Chart: Daily Time Frame

Source: Refinitiv

IG Client Sentiment Signals a Mixed AUD/USD Trading Bias

Data shows 55.82% of traders are net-long with the ratio of traders long to short at 1.26 to 1. The number of traders net-long is 9.12% higher than yesterday and 8.84% lower from last week, while the number of traders net-short is 7.57% higher than yesterday and 10.31% higher from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall.

Positioning is more net-long than yesterday but less net-long from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias.

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