AUD/USD, ASX 200 analysis: AUD perks up ahead of RBA cash rate decision

Market summary

The ISM services report fanned concerns of a recession with a mild expansion of 50.3 (below 50 denotes industry contraction)
- Prices paid (a gauge of industry inflation) expanded but at its slowest pace in three years
- New orders also expanded at a slower pace of 52.9 (and beneath its 1 and 3-month averages)
Apple shares closed lower after unveiling a US $3500 VR headset, printing a potential key reversal on high volume after briefly touching a record high
ECB President Christine Lagarde acknowledged “signs of moderation” for the eurozone’s core CPI but conceded it was too soon to call peak inflation
Oil retracted lower to fully close the weekend gap, which originally saw WTI rise $3 on news that Saudi Arabia were to cut oil production by 10% from July
AUD/USD pulled back to the lower support zone before ahead of today’s RBA meeting before rallying on a weaker US dollar, where today’s decision remains ‘finely balanced’ as to whether the RBA could pause or hike
China’s services PMI expanded faster than expected according to the private survey by Caixin, helping to lift sentiment in the Asian session
GBP weakest, CHF and JPY strongest
Read our weekly COT report for market positioning of forex, commodities and stock market indices traders

Events in focus (AEDT):

09:30 – Japan household spending, overtime pay
11:30 – Australia balance of payments, household spending, building approvals (updated)
14:30 – RBA cash rate decision

ASX 200 at a glance:

Yesterday was the most bullish day for the ASX 200 in two months
It rallied for a third day and closed above 7200
Its upside could be limited today if the RBA deliver a hawkish pause (and potentially trade lower if they hike)
SPI futures point to a weak open of ~0.6%

AUD/USD 1-hour chart:

AUD/USD pulled back to the lower support zone outlined in yesterday’s report, and the daily low perfectly respected the VPOC (volume point of control) from the prior rally. The retracement appears to be in three waves, momentum has turned decisively higher and prices have since provided a shallow retracement ahead of today’s RBA meeting. We may find that prices move higher leading up to the meeting in anticipation of a potential hike. Bulls may want to take note of the volume resistance zone around 0.6650, and the upper daily volatility band sits around the daily R1 pivot ~0.6675.

However, if prices pull back then 0.6600 may provide support heading into the meeting. It is then down to whether they hike or deliver a hawkish pause as to how AUD reacts. The probability of a dovish tine seems extremely low given the higher inflation rate and minimum wage increase delivered last week.

Asia Data Calendar (AEDT):

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.

As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.

City Index is a trading name of StoneX Financial Pty Ltd.

The material provided herein is general in nature and does not take into account your objectives, financial situation or needs.

While every care has been taken in preparing this material, we do not provide any representation or warranty (express or implied) with respect to its completeness or accuracy. This is not an invitation or an offer to invest nor is it a recommendation to buy or sell investments.

StoneX recommends you to seek independent financial and legal advice before making any financial investment decision. Trading CFDs and FX on margin carries a higher level of risk, and may not be suitable for all investors. The possibility exists that you could lose more than your initial investment further CFD investors do not own or have any rights to the underlying assets.

It is important you consider our Financial Services Guide and Product Disclosure Statement (PDS) available at www.cityindex.com/en-au/terms-and-policies/, before deciding to acquire or hold our products. As a part of our market risk management, we may take the opposite side of your trade. Our Target Market Determination (TMD) is also available at www.cityindex.com/en-au/terms-and-policies/.

StoneX Financial Pty Ltd, Suite 28.01, 264 George Street, Sydney, NSW 2000 (ACN 141 774 727, AFSL 345646) is the CFD issuer and our products are traded off exchange.