AUD/USD wavers pre-RBA: eyeing FOMC impact and local economic indicators

AUD/USD falters

The AUD/USD started March with a promising rally but faltered last week, finishing nearly 1% lower at 0.6559. The currency struggled against strong US inflation data, rising US bond yields, and a declining iron ore price.

The AUD/USD's performance this week largely hinges on the Federal Open Market Committee (FOMC) meeting on Thursday, which will clarify the Federal Reserve's rate cut timeline and magnitude.

The local economic agenda is packed, beginning with the Reserve Bank of Australia's (RBA) interest rate meeting on Tuesday, continuing with February's employment data on Thursday, and concluding with the RBA's Financial Stability Review on Friday.

RBA expectations

Date:Tuesday, 19 March at 2.30pm

In line with expectations, the RBA maintained the official cash rate at 4.35% during its February meeting.

The RBA acknowledged that elevated interest rates are balancing demand and supply sustainably, leading to revised economic forecasts. While inflation is decreasing, it remains above the desired 2-3% target, not anticipated to stabilize until mid-2026. Consequently, the RBA has maintained a slight tightening stance to support inflation's return to target.

In the subsequent press conference, RBA Governor Michele Bullock moderated the tone, indicating that future rate adjustments remain open for consideration.

The RBA is projected to maintain the 4.35% rate on Tuesday, with communications expected to mirror the February meeting's cautious tone. Rate reductions are anticipated later in the year, with a 25 basis points cut in August followed by another in November, potentially bringing the cash rate down to 3.85% by year-end.

RBA official cash rate

AUD/USD technical analysis

On the weekly chart, the AUD/USD continues its choppy sideways movement within a contracting bearish triangle. The resistance line of the triangle is at 0.6800, and the support line is at 0.6300. The midpoint of this range, typically associated with the most fluctuation, stands at 0.6550, exactly where the AUD/USD began this week.

AUD/USD weekly chart

In the daily chart, the AUD/USD failed to overcome the bearish reversal from the high of 0.6667 on 8 March, retreating back to the support level of 0.6560, which aligns with the 200-day moving average. With the significant events expected this week, increased volatility around the 200-day moving average is anticipated. Initial support is identified at 0.6500, followed by 0.6475, while initial resistance is seen at 0.6625, extending to 0.6670.

AUD/USD daily chart

• ^{Source: TradingView. The figures stated are as of 18 March 2024. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}