- Disappointing PMI data weigh on the greenback on Monday.
- US Dollar Index slumps to mid-97s in the NA session.
- The RBA is expected to announce a 25 bps rate cut on Tuesday.
Ahead of the Reserve Bank of Australia’s critical monetary policy meeting, the AUD/USD pair extended its recovery on Monday and touched its highest level since May 13 at 0.6966 in the last hour. As of writing, the pair was trading at 0.6960, adding 0.3% on a daily basis.
The broad-based greenback weakness seems to be the primary driver of the pair’s daily rally on Monday. Today’s data from the U.S. revealed that the manufacturing sector lost momentum in May with both the IHS Markit’s and the ISM’s Manufacturing PMI readings retreating from their April levels. The US Dollar Index, which spent the first half of the day in the positive territory near 97.70, came under pressure following the data and dropped to the 97.50 handle for the first time in more than two weeks.
- US: Markit Manufacturing PMI comes in at 50.5 in May vs. 50.6 expected.
- US: ISM Manufacturing PMI falls to 52.1 in May from 52.8 in April.
In the early trading hours of the Asian session, markets will be paying close attention to the RBA’s monetary policy announcements. Previewing the event, “TD and the market expect the RBA to cut the cash rate tomorrow by 25bps to 1.25%. It would be highly unusual for the Bank to keep the cash rate on hold when the cut is fully priced,” said Prashant Newnaha, Senior Asia-Pacific Rates Strategist at TD Securities.
Although a 25 bps rate cut seems to be already priced in, a dovish policy outlook could put the AUD under pressure on Tuesday.
Technical levels to watch for
The pair could face the initial resistance at 0.7000 (psychological level) ahead of 0.7020 (50-DMA) and 0.7060 (100-DMA). On the downside, supports are located at 0.6925 (daily low), 0.6900 (psychological level/May 31 low) and 0.6865 (May 23 low).
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