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  • AUD/USD recovers slightly following last week’s sell-off.
  • RBA is expected to keep its policy rate unchanged at 0.75% in January.
  • US Dollar Index clings to gains near 97.70 ahead of Manufacturing PMI data.

The AUD/USD pair lost more than 100 pips last week amid heightened concerns over the negative impact of coronavirus outbreak on the Chinese economy. With China injecting liquidity to limit the selloff in equity markets and voicing its commitment to help the economy, the AUD/USD staged a technical rebound on Monday and has gone into a consolidation phase around the 0.6700 handle.

Eyes on RBA

During the early trading hours of the Asian session on Tuesday, the RBA will announce its interest rate decision and publish its monetary policy statement. Markets expect the bank to keep its policy unchanged at 0.75%.

Previewing the data, “we think the combination of the latest 4Q19 inflation report as well as the stronger-than-expected labour market data for December, will be sufficient to keep the RBA on hold in February,” said Lee Sue Ann, Economist at UOB Group. “That said, there are headwinds from the bushfires, drought, and downturn in residential construction activity, as well as the ongoing coronavirus. As such, we are not ruling out further policy stimulus, both monetary and fiscal.”

On the other hand, the greenback is staying relatively strong against its major rivals on Monday to keep the pair’s upside capped for the time being. Later in the session, the IHS Markit’s and the ISM’s Manufacturing PMI data from the US will be looked upon for fresh impetus. At the moment, the index is up 0.35% on the day at 97.70.

Technical levels to watch for