AUD/USD hovers around 0.6965-70 as RBA’s SoMP fuels recession woes, focusing on US NFP

  • AUD/USD remains sidelined after rising over the past two days.
  • RBA downgrades economic growth forecasts, adjusts inflation forecasts in monetary policy statement.
  • The US dollar’s corrective pullback ahead of NFP has recently followed firmer returns to challenge the AUD/USD bulls.
  • Headlines around China, US NFP will be important for clear clues.

AUD/USD struggles to justify the Reserve Bank of Australia (RBA)’s quarterly monetary policy statement, commonly referred to as MPS or SoMP, during Friday’s Asian session. That said, the Aussie pair remains sidelined around 0.6970, breaking the two-day uptrend amid the cautious mood leading up to the US Nonfarm Payroll (NFP).

RBA warns in its quarterly MPS that the economy will slow sharply as inflation rises. “Economic growth forecasts have been cut by a full percentage point this year to 3.25%, while 2023 and 2024 have been cut by about a quarter of a point to 1.75%,” Reuters said. The news also adds that the RBA has pushed its forecast peak for headline inflation to 7.75%, after it had tipped 5.9% in May.

Also Read: RBA Statement: RBA Raises Its Inflation Forecast

In addition to the RBA’s SoMP, the recovery in US Treasury yields could also be related to the latest decline in the AUD/USD pair. That said, 10-year US Treasury yields are stabilizing around 2.069% after falling over the past two days. Still, US Treasury yields continued to reflect the risk of a recession, as the difference between 10- and 2-year bond coupons remains the largest since 2000.

The risks of economic slowdown were also highlighted by the Bank of England’s (BOE) open acceptance of the recession in late 2022, as well as the comments by Cleveland Fed president Loretta Mester that recession risks have increased in the US.

Amid these developments, Wall Street closed mixed and the S&P 500 Futures remain outwardly directionless.

After witnessing the initial reaction to the RBA’s MPS, AUD/USD traders may witness the lackluster day amid the pre-NFP trading lull. That said, the expected weakness in US jobs data for July could help the AUD/USD extend the previous day’s gains.

Technical analysis

A resistance line descending from April 20 and a 100-day EMA, close to 0.7025 and 0.7040 in that order, lures AUD/USD buyers unless the price falls below a four-month-old previous support line, around 0. 6,875 by press time.

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