AUD/USD stuck in range, awaits RBA meeting and Chinese data for breakout

Frustratingly range-bound AUD/USD

Compared to last week's volatility in the EUR/USD, sparked by troubles on the European political scene, the AUD/USD has remained frustratingly pinned within a 0.6550-0.6720 range for the past six weeks.

After the AUD/USD tested and failed to break to the upside on three occasions during that time, it is hoped that tomorrow's Reserve Bank of Australia (RBA) Board meeting might provide a spark. However, in lieu of that, the fallout of events in China today could provide a much-needed catalyst.

Is China's falling house prices a potential catalyst for AUD/USD?

Data today showed that house prices in China fell by 3.9% year-on-year (YoY) in May, marking the 11th consecutive period of falling home prices and the sharpest decline since June 2015. The fall came despite significant property stimulus measures announced by the government last month, including relaxing mortgage rules and encouraging local governments to buy unsold homes.

While it's still early days, the lack of any signs of improvement suggests that further supportive measures may be needed to stabilise the property market. That would be good news for iron ore and potentially for the AUD/USD.

RBA interest rate meeting

Date: Tuesday, 18 June at 2.30pm AEST

At its last Board meeting in May, the RBA kept the official cash rate on hold at 4.35% for a fourth straight meeting. The decision came despite a firmer-than-expected Q1 2024 inflation reading.

In the accompanying statement, the RBA sounded neutral, noting that higher interest rates were working to establish a more sustainable balance between demand and supply. The RBA's forward guidance was identical to that offered in the March meeting: "The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain, and the Board is not ruling anything in or out."

Economic indicators and market expectations for rate cuts

In the lead-up to tomorrow's Board meeting, retail sales, GDP, business, and consumer confidence readings have been soft, while labour market and inflation data have remained firm. As such, the RBA will likely keep rates on hold tomorrow at 4.35% and reiterate that returning inflation to target is its priority.

Ahead of the meeting, the rates market is pricing in a ~42% chance of a 25 bp RBA rate cut in December, with a full rate cut priced by April.

RBA official cash rate chart

AUD/USD technical analysis

Over the past six weeks, the AUD/USD has duly respected weekly downtrend resistance, currently around .6720, coming from the .7158 February high. A break above here would open a test of the December .6871 high before .7000c. On the downside, uptrend support from the October 2022 .6170 low is viewed around .6360.

AUD/USD weekly chart

AUD/USD technical analysis

To increase the chances that the AUD/USD based at the 19 April low of 0.6362, the AUD/USD needs to firstly maintain altitude above the 200-day moving average at 0.6543. It then must break above the mid-May high of 0.6714 and multi-week trendline resistance noted above at approximately 0.6720. In this case, the next upside target would become a cluster of horizontal resistance at 0.6870/0.6900 before 0.7000.

On the downside, if the AUD/USD were to see a sustained fall below the 200-day moving average at 0.6543, it would warn that a deeper pullback is underway towards support at approximately 0.6480, coming from the swing lows of March and April 2024, with scope to the February low of 0.6442.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 17 June 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.}