RBA will wait with cutting feet, AUDUSD may bounce back

The AUDUSD rate returned to the autumn holes, pulled down by fear of the coronavirus epidemic. The RBA's postponement of interest rate cuts in Australia may be a good excuse for rebound. Otherwise, the rate will quickly fall below 0,66.

Rate cut Not yet

On Tuesday, February 4, the Australian Reserve Bank (RBA) will most likely not decide to change interest rates, leaving the main interest rate at 0,75%, such conclusions are derived from the latest Reuters survey. However, their reduction is expected later.

Australian fires, but also earlier disappointing macroeconomic data (e.g. PMI indices for industry and services below the 50 point barrier), increased expectations for interest rate cuts by RBA, which negatively affected AUD / USD. Like the fear of an economic slowdown in China (as a result of a coronavirus epidemic), which is one of Australia's largest trading partners.

There was a period when the forward market was pricing in cut in February. However, the latest better-than-expected Australian labor market data for December (unemployment unexpectedly fell to 5,1 percent from 5,2 percent and employment increased by 28,9 thousand), as well as higher-than-expected CPI inflation in the last last quarter (1,8% against projected 1,7% y / y), thwarted these plans, shifting expectations to interest rate cuts.

The forward market is currently pricing in at around 60 percent the chances of interest rate cuts in Australia at the April meeting.

Similar economists say surveyed by Reuters. Most of them expect that the reduction in the cost of money by 25 bp will take place at the April meeting. Then they will remain stable until the end of the year. And at the beginning of 2021 they will be reduced by another 25 bp, which will bring the main rate to 0,25 percent.

Tuesday's RBA meeting is extremely important from the point of view of AUD / USD. On the wave of recent concerns about the coronavirus epidemic, the course fell to the support zone 0,6671-0,6688, which is formed by autumn holes. Considering the huge sell-off (RSI 22,29), the chances for a bounce up are quite high. At least those evaluated through the prism of technical analysis. On the other hand, if we look at the Australian dollar from the foundation, then for the AUD / USD news from China and the RBA meeting will remain crucial.

Chart AUDUSD, D1 interval. Source: MT4 Tickmill.