AUD/USD faces downward pressure: Risk aversion and RBA's rate decisions impact

Last week, the AUD/USD closed lower for a third consecutive week due to risk aversion selling and following the RBA's decision to keep rates on hold at 4.10%.

Impact of global events on AUD/USD

The risk aversion selling was triggered by a significant rise in yields on the typically stable US 30 bond during the week. The US Treasury's unexpected announcement of larger sizes for upcoming auctions caught the market off guard, leading to bond market malaise. This was further exacerbated by spillover effects from the BoJ's meeting, which saw a slight adjustment to YCC, and the Fitch downgrade of the US credit rating.

We firmly believe that it is not just the direction of yields that influences cross-asset volatility, but rather the speed of the movement that causes dislocation.

Hence, market participants will closely monitor this week's quarterly auctions of 10-year notes and 30-year bonds to gauge the level of demand. Any signs of bond market indigestion may quickly impact other risk assets, including the AUD/USD.

Domestic factors influencing AUD/USD

On the domestic front, key events influencing the AUD/USD will be Tuesday's consumer and business confidence surveys. With the RBA's decision to hold rates and lower inflation, we expect consumer sentiment to rebound towards 85 from the previous 81.3. Meanwhile, the NAB Business Confidence index is likely to see a slight decline from 0 to -1.

AUD/USD technical analysis

In terms of technical analysis, our outlook for the AUD/USD remains mildly negative as long as it stays below resistance at .6600/20. We anticipate a test of the May .6458 low. However, a sustained break above .6600/20 could lead to a retest of the 200-day moving average at .6732. In such a scenario, the double top at .6900c would be the next major level of interest.

AUD/USD daily chart

• _{TradingView: the figures stated are as of August 7, 2023. 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.}