AUD extends gains, RBA next

The Australian dollar has started the new trading week in positive territory, continuing the upswing which started on Thursday. Currently, AUD/USD is trading at 0.7283, up 0.33% on the day.

The Aussie fell below the 72 line last week and dropped to its lowest level in a month. However, the currency has rebounded strongly and is close to the 73 level. Last week ended on a positive note for equities. Wall Street received a lift from Merck, which announced a pill to treat Covid. The dollar also lost ground on Friday as US Treasury yields fell slightly. Finally, with the greenback showing some strength lately, we’re seeing some profit-taking which has undermined dollar strength.

RBA expected to maintain policy

With major economies continuing to make progress against Covid-19, inflation has been moving higher. Central banks such as the Fed and BoE have argued that the surge in inflation is transitory, but that stance is looking more difficult to defend, and last week, Fed Chair Powell was forced to acknowledge that high inflation will remain for longer than the Fed had anticipated.

There are increased expectations that central bank policymakers will have to hike rates sooner than later in order to curb inflation, and some hawkish Fed members have urged the central bank to raise rates next year. As for the RBA, it has insisted that it has no plans to raise rates from the current record low of 0.10% before 2024.

On Tuesday, RBA Governor Lowe will provide an update on the economic outlook, but there is really no reason to expect any change in policy. The most recent job numbers showed a sharp loss due to Covid lockdowns, while retail sales have declined for three successive months. Barring the absolutely unexpected, the upcoming policy meeting should be a snoozer for the Australian dollar.

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AUD/USD Technical

• There is resistance at 0.7325. Next, there is resistance at 0.7389, protecting the round number of 0.7400
• The pair has support at 0.7184.  Below, there is support at 0.7107

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