RBA meeting looms as AUD/USD hits four-month low

AUD/USD on the ropes ahead of RBA

Last week, the AUD/USD finished lower at 0.6512 (-0.53%), marking a third straight week of declines and its lowest weekly close in almost four months. The decline was fuelled by cooler Australian inflation figures for the June quarter, risk aversion flows, and an unwinding of long AUD/JPY trades after the Bank of Japan raised rates and struck a hawkish tone.

This week, while risk sentiment and the AUD/JPY unwind will remain influential, all eyes will be on Tuesday’s RBA interest rate meeting, previewed below.

RBA interest rate meeting

Date: Tuesday, 6 August at 2:30pm AEST

At its last meeting in June, the RBA kept its official cash rate on hold at 4.35% for a fifth consecutive meeting. However, in the accompanying statement and press conference, the RBA sounded hawkish.

RBA Governor Bullock noted that the Board debated between a hike and a hold and that "a lot needs to go our way." The reintroduction of a comment at the end of its post-meeting statement that the RBA "will do what is necessary" to return inflation to target reinforced its hawkish bias.

Last week, the RBA's preferred measure of inflation, the trimmed mean, rose by 0.8% in the June quarter (consensus was +1.0%), allowing the annual rate to fall to 3.9% from 4.0%, marking a sixth quarter of lower annual trimmed mean inflation.

The cooler core inflation reading increased confidence that inflation can end the year at or close to the RBA's forecast of 3.4%. While the RBA's messaging tomorrow is likely to remain hawkish and be accompanied by a modest lift in its inflation targets, we expect the RBA to stay on hold at 4.35% before a first rate cut in December.

RBA cash rate target

AUD/USD technical analysis

The AUD/USD's break below support at 0.6700 in mid-July, coming from the April 0.6362 low, was the catalyst for the AUD/USD acceleration lower. While the AUD/USD is oversold, and there were some signs of downside capitulation at last Wednesday's 0.6479 low, the lack of bounce warns that downside risks remain.

As such, while the AUD/USD remains below the 200-day moving average at 0.6590, there is scope to test trendline support at around 0.6415, coming from the October 2023 0.6270 low, with a sustained break below here opening the way for a test of the April 0.6362 low.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 5 August 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.}