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  • AUD/USD opens the week under pressure.
  • US Dollar Index posts modest gains above 97.50 on Monday.
  • Coming up: Retail sales and trade balance data from Australia and the RBA’s rate decision.

The AUD/USD pair dropped sharply in the first hour of trading on Monday as the resurfacing concerns surrounding the U.S.-China trade war weighed on the antipodeans. However, following the initial fall to a daily low of 0.6962, the pair staged a modest rebound and was last seen trading around 0.70, still 30 pips below Friday’s closing mark.

On Sunday, President Trump, via Twitter, said that the tariff rate on Chinese imports could rise to 25% from 10%, hurting the expectation of a trade deal getting finalised this week in Washington. In response to Trump’s comments, Chinese news outlets reported that some of the Chinese officials who were to travel to the U.S. this week for the next round of negotiations had cancelled their trips.

Meanwhile, the sour market sentiment helped the greenback find demand as a safer alternative and caused the pair to push lower. In the absence of significant macroeconomic data releases from the U.S., the US Dollar Index is clinging to its daily gains, adding 0.12% on the day at 97.60.

In the early trading hours of the Asian session, the Reserve Bank of Australia will announce its interest rate decision and will publish the monetary policy statement. Previewing the event, “Market pricing for a cut in May skyrocketed to near 70% immediately following the print, though  has settled on just shy of 50% priced for the past week. Current pricing suggests a 49% likelihood of a move,” said Westpac analysts and conclude:

“We continue to believe the RBA will move to an easing bias at their 7 May meeting which will be clarified in the 10 May Statement on Monetary Policy. This will set the stance for our forecast of 25bps cash rate cuts in August and November.”

Technical levels to watch for