Asia Day Ahead: RBA in focus, AUD/USD back to retest horizontal resistance

Asia Open

The Asian session was set for a positive open, with Nikkei +1.08%, ASX +0.54% and KOSPI +1.76% at the time of writing. This comes as Wall Street offered a positive lead overnight, with major US indices extending their gains for the third straight trading day.

Moves in US Treasury yields were largely tame, with the two-year yields edging 1.3 basis point (bp) higher, while the US 10-year were 2 bp in the red. As a result, the US dollar failed to see much pick-up, which may provide the go-ahead for risk sentiments to follow through with its positive momentum from last week.

The economic calendar was quiet to start the week, with attention on a few Fedspeak which largely align with the Federal Reserve (Fed)’s patient stance in terms of policy easing – something that markets are already accustomed to.

Chinese equities continued to march higher yesterday, with the Hang Seng Index (HSI) on its ten straight day of gains. The valuation gap with its global peers suggests room for further catch-up if expectations for stabilising economic conditions were to be validated. On another front, the USD/JPY turned higher amid little takeaway from Masato Kanda’s comments, which could see the bulls attempting to reclaim the 154.80 level.

Look-ahead: Reserve Bank of Australia (RBA) interest rate decision

The key event today will revolve around the RBA interest rate decision. The central bank is widely expected to keep its official cash rate unchanged at 4.35%, with current rate expectations pricing only a 33% chance for a 25 bp rate hike in 2024. This follows after a stronger-than-expected print on Australia’s inflation and employment data, which gave rise to views that additional rate hikes may be needed instead.

With the RBA watering down its tightening bias and shifted to a neutral stance at the previous March meeting, markets will be watching if the recent run of stronger economic data will bring back its initial phrasing of keeping additional interest rate increases on the table.

What to watch: AUD/USD back to retest key horizontal resistance

Ahead of the RBA meeting, the AUD/USD is back to retest its key horizontal resistance at the 0.665 level, which has weighed on the pair on at least two occasions since March 2024. The level also coincides with a 38.2% Fibonacci retracement level, leaving it as a key resistance confluence for buyers to overcome.

For now, some expectations are in place for a hawkish turn from the RBA this week. Pushing above the 0.665 level may see the pair move to retest the 0.673 level next. On the other hand, failure to break past the resistance post-RBA meeting may leave the AUD/USD stuck within its current consolidation range, with near-term support at the 0.654 level on watch.