The AUD/USD exchange rate and the ASX 200 Indices held steady on Monday morning as traders waited for the upcoming Reserve Bank of Australia (RBA) interest rate decision. The ASX 200 was trading at $8,840, a few points below the all-time high of $8,860.
On the other hand, the AUD/USD exchange rate was trading at 0.6523, higher than this month’s low of 0.6417.
RBA interest rate decision
The main AUD/USD and ASX 200 Index news will be the upcoming RBA interest rate decision on Tuesday. This will be a crucial decision as most analysts believe that the bank will cut interest rates by 0.25% and bring the official cash rate to 3.60%, down from a peak of 4.20% last week.
There is a case for cutting interest rates now since Australia’s inflation has been in a strong downtrend. The most recent data showed that the Australian Consumer Price Index (CPI) dropped to 2.1% in the second quarter as the cost of food and energy fell.
At the same time, there are concerns about the Australian economy amid concerns about the ongoing economy. A report released in June showed that the economy grew by just 1.3% YoY, lower than the expected 1.5%.Its QoQ growth rate was 0.2%, also lower than what analyst were expecting.
There are also concerns that the Australian economy will be affected by Donald Trump’s trade war. Australia exports goods worth over $40 billion annually to the United States, while China, its biggest trading partner, sells goods worth hundreds of billions of dollars.
A Reuters poll shows that most analysts also expect that the RBA will deliver one more cut this year. In a statement, an analyst at Nomura said:
“Q2 inflation data was no worse than feared and the softer June labour force report we saw recently is more than enough to get your 25-basis-point rate cut. It would seem the RBA’s recent concerns about inflation were perhaps a little bit overdone.”
Australian bond yields have pulled back before the RBA interest rate decision, with the ten-year falling to 4.255% and the five-year moving to 3.56%.
The top ASX 200 stock to watch this week is Commonwealth Bank, which will publish its numbers on Wednesday. Other top firms will be Pro Medicus and Amcor.
ASX 200 Index analysis
The daily chart shows that the ASX 200 Index has been in a strong bull run in the past few months and is now at the highest level on record. It recently flipped the important resistance at $8,625, its highest level in February into support.
The ASX 200 Index remains above the 50-day and 100-day Exponential Moving Averages, which is a bullish sign. However, the Relative Strength Index (RSI) and the MACD have formed a bearish divergence pattern. Therefore, they will likely pull back and retest the support at $8,625 and then resume the uptrend.
AUD/USD technical analysis
The daily chart shows that the AUD/USD has rebounded in the past few days, moving from a low of 0.6425 on July 31st to the current 0.6525. It has been in this range in the past few months.
Like the ASX, the pair has moved above the 50-day moving and the 100-day moving averages. It is also approaching the upper side of the ascending trendline that connects the highest swings since May 7. Therefore, the most likely scenario is where the AUD/USD rises and hits the psychological point at 0.6600.
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