AUD/USD moves higher ahead of RBA minutes

The Australian dollar has posted gains on Monday.  AUD/USD is trading at 0.6717 in the European session, up 0.46%.

Will RBA minutes provide any clues? 

The Reserve Bank of Australia releases the minutes of the December meeting later on Tuesday. The markets will be looking for some clues as to when the RBA might wind up the current tightening cycle. At the December meeting, the RBA raised rates by a modest 25 basis points for a third straight time. The monthly inflation report showed that CPI dropped to 6.9% in November, although the quarterly inflation releases carry more weight.

With the next rate meeting not until late February, it’s wait-and-see time for the RBA. Inflation remains the RBA’s number one priority, but policy makers are aware of the hardship that rising interest rates are causing to businesses and households. If inflation shows some downward movement in the next couple of months, we can expect the RBA to deliver another 50-bp increase in February or perhaps even take a pause. Last week, inflation expectations for November dropped to 5.2%, down from 6.0%, in what could be an indication that inflation is finally heading lower.

US data ended the week on a sour note, as Services business activity and Manufacturing PMIs remained in contraction territory with readings below the 50.0 level. Services fell to a four-month low at 44.4, while manufacturing activity dropped to 46.2, a 31-month low. These weak PMIs have raised fears that a recession is not far away and with rates in restrictive territory, the downturn in economic activity is likely to continue.

AUD/USD Technical

• AUD/USD is testing support at 0.6752. The next support level is at 0.6611
• There is resistance at 0.6828 and 0.6969

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