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AUD/USD trades in tight range near 0.76 ahead of RBA

  • The pair started the week with a 20-pip bearish gap.
  • DXY sits comfortably above the 93 handle.
  • Investors are waiting for RBA's policy rate decision.

The AUD/USD pair started the week with a bearish gap and pushed lower to 0.7580 before starting to retrace its daily losses. After recovering back above the 0.76 handle, the pair seems to have steadied and has been moving in a 10-pip range in the last couple of hours. As of writing, the pair was at 0.7602, down 0.14% on the day.

DXY kicks off the week on a positive note

The market reaction to the US Senate's approval of the highly-anticipated tax bill came at the market opening, increasing the demand for the greenback and lifting the US Dollar Index above the 93 handle. In the meantime, concerns over Michael Flynn, Donald Trump's former national security adviser, testifying against Trump eased over the weekend as his interactions with Russian officials were assessed as being lawful. Nonetheless, the index is having a difficult time pushing higher amid a lack of fresh fundamental drivers in the second half of the day.

On Tuesday, the Reserve Bank of Australia is going to announce its policy rate decision and release the official monetary policy statement. In his RBA preview report, Ivan Delgado, Asian Chief Analyst at FXStreet, wrote, "the RBA can justify sitting in its comfort zone of neutrality, with arguments to be made for both a future increase or decrease in rates. On one hand, lower incomes being outpaced by household debt, lower inflation expectations, coupled with sluggish consumer spending are not a 'pretty combination' nor lays the foundation to be overly optimistic. On the other hand, the labor conditions and investment projections are at healthy levels."

"The RBA can and will find enough reasons to justify further room for future monetary policy considerations; there is essentially zero need to rush. Such stance, unlikely to be altered in the near term, will result in depressed expectations in RBA cash rate changes," Delgado further adds.

Technical outlook

The pair could encounter the initial resistance at 0.7640 (Dec. 1 high) ahead of 0.7675 (50-DMA) and 0.7710 (200-DMA). On the downside, supports align at 0.7550 (Dec. 1 low), 0.7500 (psychological level) and 0.7420 (May. 26 low).

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