AUDUSD vulnerable ahead of this weeks RBA communique

This week, the RBA will have the opportunity to increase its support level and provide updated forecasts at its monthly Board meeting on Tuesday and in its Statement on Monetary Policy on Friday.

The expectation is for the RBA to downgrade near-term Q3 GDP significantly. However, with a relatively strong recovery predicted in Q4 as restrictions are eased, medium-term forecasts are expected to remain relatively unchanged.

In a case of unfortunate timing, the RBA is expected to reverse last month's decision to taper QE and will announce that it will continue purchases at A$5bn/week beyond September, signalling a willingness to be flexible in light of new developments.

Adding some intrigue around this decision, Westpac's influential Chief Economist Bill Evans is calling for the pace of the RBA's purchase program to be increased. Given this morning's extension of lockdowns in QLD, an increase in the rate of purchases to A$6bn/week cannot be ruled out.

Aside from QE, the RBA is expected to maintain its yield target at 0.1% on the April 2024 bond and reiterate that a hike in the cash rate is unlikely until 2024.

Heading into this week's dovish RBA communique, the AUDUSD is in a vulnerable position, trading not far above the recent .7289 low, an -11% fall in iron ore at the back end of last week, providing an additional headwind to the currency.

Technically while the AUDUSD remains below trend channel and horizontal resistance at .7420ish, downside risks remain towards .7200c and possibly towards medium-term support .7020/.6990.

Aware that a rally above .7420 would likely see the AUDUSD push towards the 200-day moving average currently at .7600c.

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