• AUD/USD fills a modest gap down on Monday, though it lacks follow-through buying.
• Traders seem hesitant and opt to wait on the sidelines ahead of this week’s key events.
• The mixed technical setup further warrants caution before placing fresh bullish bets.

The AUD/USD pair attracts some dip-buyers following a modest gap-down open on Monday and holds comfortably above the 0.7100 mark through the Asian session. The upside, however, remains capped as traders await Reserve Bank of Australia (RBA) Governor Michele Bullock's speech on Tuesday ahead of Australian employment details and the Trump-Xi meeting during the latter part of the week.

In the meantime, rising expectations for an imminent RBA rate hike this month continue to lend some support to the Australian Dollar (AUD). Meanwhile, the US Federal Reserve's (Fed) hawkish outlook, along with escalating tensions in the Middle East, helps the US Dollar (USD) stall Friday's retracement slide from its highest level since late July and keeps a lid on any meaningful upside for the AUD/USD pair.

From a technical perspective, spot prices keep a modestly constructive near-term tone after defending the 100-day Simple Moving Average (SMA) at 0.7078 and above the 38.2% Fibonacci retracement level of the June-September upswing. Meanwhile, the Relative Strength Index (RSI) around 48 suggests neutral momentum, while the Moving Average Convergence Divergence (MACD) remains slightly negative, hinting that upside attempts may be gradual rather than impulsive despite the AUD/USD pair’s position above its primary trend floor.

The next relevant resistance emerges at the 23.6% retracement around 0.7149, with a subsequent barrier at the recent swing high near 0.7237. A break above the latter would reinforce the broader constructive bias. On the downside, initial support is seen near the 38.2% Fibo. retracement at 0.7095, followed by the 50.0% retracement at 0.7051 and the 100-day SMA around 0.7078, with deeper demand levels at the 61.8% retracement at 0.7007 and the 78.6% level at 0.6944.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

AUD/USD daily chart

RBA FAQs

The Reserve Bank of Australia (RBA) sets interest rates and manages monetary policy for Australia. Decisions are made by a board of governors at 11 meetings a year and ad hoc emergency meetings as required. The RBA’s primary mandate is to maintain price stability, which means an inflation rate of 2-3%, but also “..to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people.” Its main tool for achieving this is by raising or lowering interest rates. Relatively high interest rates will strengthen the Australian Dollar (AUD) and vice versa. Other RBA tools include quantitative easing and tightening.

While inflation had always traditionally been thought of as a negative factor for currencies since it lowers the value of money in general, the opposite has actually been the case in modern times with the relaxation of cross-border capital controls. Moderately higher inflation now tends to lead central banks to put up their interest rates, which in turn has the effect of attracting more capital inflows from global investors seeking a lucrative place to keep their money. This increases demand for the local currency, which in the case of Australia is the Aussie Dollar.

Macroeconomic data gauges the health of an economy and can have an impact on the value of its currency. Investors prefer to invest their capital in economies that are safe and growing rather than precarious and shrinking. Greater capital inflows increase the aggregate demand and value of the domestic currency. Classic indicators, such as GDP, Manufacturing and Services PMIs, employment, and consumer sentiment surveys can influence AUD. A strong economy may encourage the Reserve Bank of Australia to put up interest rates, also supporting AUD.

Quantitative Easing (QE) is a tool used in extreme situations when lowering interest rates is not enough to restore the flow of credit in the economy. QE is the process by which the Reserve Bank of Australia (RBA) prints Australian Dollars (AUD) for the purpose of buying assets – usually government or corporate bonds – from financial institutions, thereby providing them with much-needed liquidity. QE usually results in a weaker AUD.

Quantitative tightening (QT) is the reverse of QE. It is undertaken after QE when an economic recovery is underway and inflation starts rising. Whilst in QE the Reserve Bank of Australia (RBA) purchases government and corporate bonds from financial institutions to provide them with liquidity, in QT the RBA stops buying more assets, and stops reinvesting the principal maturing on the bonds it already holds. It would be positive (or bullish) for the Australian Dollar.

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.