AUD/USD gains ground ahead of RBA

The Australian dollar has started off the trading week with gains. In North American trade, AUD/USD is trading at 0.7047, up 0.30% on the day.

It was a rough week for the Aussie, as AUD/USD fell by 1.5 per cent. The pair touched a weekly low of 0.7002, its lowest level since July 20th. However, the pair has reversed directions on Monday and moved some distance above the symbolic 0.7000 level.

Manufacturing PMI shows expansion

Australian data was mostly positive to start off the week. The AIG Manufacturing Index moved well into expansionary territory, climbing from 46.7 to 56.3. This was the highest figure since October 2018. Building Permits jumped 15.4%, crushing the estimate of 1.5%. Commodity Prices have been contracting for over a year, but the October reading improved to -0.3%, a negligible decline. This is good news for Australia’s export sector, which is heavily reliant on global demand for its commodity exports. The only disappointment was the MI Inflation Gauge, which came in at -0.1% in October, down from 0.1%.

Will RBA trim interest rates?

The Reserve Bank of Australia will be on center stage on Tuesday (3:30 GMT), and there is a strong likelihood that policymakers will lower the Cash Rate, from 0.25% to 0.10%. This would mark the first rate move since March, when the RBA slashed rates in response to the devastating impact of the Covid-19 pandemic. In a global environment of ultra-low interest rates and weak economic conditions, a rate cut to 0.10% will not shock the markets, although such a move could push the Aussie below the psychologically significant 0.7000 level. However, the RBA could be considering further easing in the months to come, as senior bank officials have stated that negative rates are an option. Such a scenario, which is unlikely to materialize before 2021, could weigh significantly on the Aussie, as investors clearly would prefer assets where they receive a return on their funds. Investors will be combing through the rate statement, looking for clues with regard to future monetary policy.

AUD/USD Technical

• There is resistance at 0.7063. The next resistance line is 0.7097, which is protecting the 0.71 level
• We find support at 0.7003, followed by support at 0.6777
• AUD/USD remains below the 10-day MA

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