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AUD/USD holds above 0.6500 as focus shifts to RBA

  • RBA is widely expected to keep its policy rate steady at 0.75%.
  • US Dollar Index continues to push lower toward 97.
  • CME Group FedWatch Tool shows markets are pricing a 50 bps rate cut in March.

The AUD/USD pair edged lower toward the 0.6500 handle during the American trading hours but the broad-based USD weakness allowed the pair to find support and remain in the positive territory. As of writing, the pair is up 0.37% on the day at 0.6533.

According to the CME Group's FedWatch Tool, markets are now pricing a 100% probability of a 50 basis points rate cut in March. The US Dollar Index, which erased more than 1% last week, continues to push lower on Monday on rate cut expectations. At the moment, the index is erasing 0.8% at 97.35.

Moreover, the dismal macroeconomic data from the US further weighed on the greenback on Monday. The ISM Manufacturing PMI in February fell to 50.1 from 50.9 in January and fell short of analysts' estimate of 50.4. 

Will RBA lower the policy rate?

In the early trading hours of the Asian session, the Reserve Bank of Australia will announce its interest rate decision and publish the policy statement. Although it is widely expected to keep its policy rate unchanged at 0.75%, some experts think that major central banks could opt out for coordinated rate cuts to battle a potential global recession and the RBA could be the first bank to do so.

Previewing the event, “we bring forward our rate-cut expectations from RBA following developments over the weekend," said Standard Chartered analysts on Monday. "We still forecast two 25bps rate cuts from the RBA in 2020, but we now see them in March and April; we had earlier expected rate cuts in April and Q3.” 

Technical levels to watch for

 

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