Aussie rebounds on solid PMI, RBA next

Manufacturing continues to expand

The Australian dollar has bounced back on Monday and posted strong gains, after posting losing sessions every day last week. AUD/USD is currently trading at 0.7379, up 0.50% on the day.

The week started on a positive note, as Australian Manufacturing PMI for July indicated strong expansion. The PMI decelerated from 63.2 to 60.8, but investors didn’t seem to mind as the PMI has showed expansion for a tenth straight month and the June read was a record high. The strong reading is all the more impressive, given that the government imposed widespread lockdowns which included Melbourne and Sydney.

The RBA holds a policy meeting on Tuesday, and the markets may be treated to the central bank having to postpone a taper of its bond purchase programme. The RBA announced in early July that it would scale back QE from AUD 5 billion to 4 billion dollars each week as of September. However, the upsurge in Covid cases in Australia in recent weeks has triggered lockdowns and quickly soured the economic outlook. The taper would have had a limited impact, but its cancellation sends a loud dovish message to the markets, which could sour sentiment towards the Australian dollar. The RBA will also be in focus later in the week, as RBA Governor Lowe testifies before lawmakers on Thursday and the RBA releases quarterly economic forecasts on Friday.

The most recent lockdowns and the cancellation of the taper mean that the RBA is unlikely to raise interest rates before 2024. The RBA has hit the pause button, but once Covid eases and the lockdowns are lifted, bank members will again be looking a modest taper.

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AUD/USD Technical

• AUD/USD has support at 0.7297. Below, there is support at 0.7231
• There is resistance at 0.7422, followed by resistance at 0.7481

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