Forex Market: AUD/USD rebounds as RBA keeps policy unchanged, investors focus on US relief plan talks

Having dropped to one-week lows on Monday, AUD/USD was edging higher on Tuesday after the Reserve Bank of Australia (RBA) left policy unchanged. Market players are also looking for clarity over the US coronavirus relief plan as political negotiations continue.

“We’re still in a situation where the market wants to believe the recovery is on track but is still worried about the COVID situation,” Bank of Singapore Forex analyst Moh Siong Sim said.

“The fiscal wrangling in the U.S. is the next key test for risk sentiment, and if they manage to get a deal – which seems likely – that could be supportive of risk sentiment.”

Yesterday it became clear that certain progress had been made in talks on the latest coronavirus relief bill, but still, an expired $600-a-week unemployment benefit was a sticking point.

Meanwhile, the RBA left its official cash rate intact at a record low level of 0.25% at its policy meeting earlier Tuesday, in line with market expectations. The bank noted that the recovery from the coronavirus crisis would probably be “uneven and bumpy”, while the renewed lockdown in the state of Victoria was expected to have a significant impact on economic growth.

The RBA Board said that several scenarios were being considered. The baseline scenario envisages a 6% drop in Australia’s GDP this year, followed by a 5% growth in 2021.

“We estimate the total potential hit to GDP will be at least A$10 billion, or more than 2% of national quarterly GDP; and probably closer to A$16 billion, or 3.5% of GDP,” UBS economist George Tharenou said. “There is downside risk to the outlook.”

In terms of macro data, a report by the Australian Bureau of Statistics showed on Tuesday that retail sales had increased at a monthly rate of 2.7% in June, while exceeding market consensus, but slowing down from a record 16.9% surge in May.

As of 7:13 GMT on Tuesday AUD/USD was edging up 0.20% to trade at 0.7138, while moving within a daily range of 0.7106-0.7147. Yesterday it slipped as low as 0.7077, or its weakest level since July 24th (0.7064). The major pair advanced 3.48% in July, which marked its fourth consecutive month of gains.

On today’s economic calendar, at 14:00 GMT US census Bureau will release the monthly data on factory orders. New orders for manufactured goods probably rose at a monthly rate of 5% in June, according to market expectations, following another 8% surge in May.

Bond Yield Spread

The spread between 2-year Australian and 2-year US bond yields, which reflects the flow of funds in a short term, equaled 15.4 basis points (0.154%) as of 6:15 GMT on Tuesday, down from 16.0 basis points on August 3rd.

Daily Pivot Levels (traditional method of calculation)

Central Pivot – 0.7117
R1 – 0.7157
R2 – 0.7190
R3 – 0.7230
R4 – 0.7270

S1 – 0.7083
S2 – 0.7043
S3 – 0.7010
S4 – 0.6977