• AUD/USD attracts some intraday selling after the RBA decided to leave rates unchanged.
• The prospects for further RBA tightening help limit losses amid subdued USD price action.
• The uncertainty over the Fed’s rate-hike path continues to act as a heading for the USD.
• Traders might refrain from placing fresh bets ahead of the FOMC minutes on Wednesday.

The AUD/USD pair comes under some selling pressure during the Asian session on Tuesday and stalls a three-day-old uptrend from sub-0.6600 levels or its lowest level since June 5 touched last week. The Australian Dollar (AUD) weakens across the board in reaction to the Reserve Bank of Australia’s (RBA) decision to leave the Official Cash Rate (OCR) unchanged at 4.10%. This seems to have disappointed some analysts anticipating another 25 bps lift-off for the third straight month. In the accompanying monetary policy statement, the Australian central bank said that the decision to pause in July was largely driven by the need for further evaluation of the economic landscape against the backdrop of the recent tightening. The RBA, however, lifted bets for more rate hikes in the future and stated that some further tightening may be required to ensure that inflation returns to target in a reasonable timeframe.

It is worth recalling that the headline consumer inflation in Australia slowed to a 13-month low in May, though the core trimmed mean measure of CPI remained elevated. This could give the RBA more impetus to potentially keep raising interest rates, which, along with subdued US Dollar (USD) price action, assist the AUD/USD pair attract some dip-buying near the 0.6640 region. The weaker-than-expected release of the US ISM Manufacturing PMI on Monday comes on the back of the softer US PCE Price Index and raises questions over how much headroom the Federal Reserve (Fed) has to continue tightening its monetary policy. This, in turn, keeps the USD bulls on the defensive and lends some support to the major. The markets, however, are still pricing in a 25 bps lift-off at the next FOMC policy meeting on July 25-26, which remain supportive of elevated US Treasury bond yields and act as a tailwind for the Greenback.

Hence, the market focus will remain glued to the release of the minutes of the June FOMC meeting on Wednesday, which will be scrutinized for fresh cues about the future rate-hike path. Investors this week will also confront the closely-watched US monthly employment details, popularly known as the NFP report on Friday. This, in turn, should influence the USD price dynamics and provide some meaningful impetus to the AUD/USD pair. In the meantime, worries about a global economic downturn could benefit the safe-haven buck and contribute to keeping a lid on any meaningful positive move for the risk-sensitive Aussie. This makes it prudent to wait for a sustained strength beyond a cluster of technically significant moving averages (50-day, 100-day, and 200-day SMA) before placing bullish bets.

Technical Outlook

From a technical perspective, oscillators on the daily chart – though have been recovering from lower levels – are yet to confirm a positive outlook. That said, some follow-through buying beyond the 0.6700 mark, which coincides with the 200-day SMA, will be seen as a fresh trigger for bullish traders and pave the way for additional gains. The AUD/USD pair might then climb to the 50% Fibonacci retracement level of the downfall witnessed in June, around the 0.6745 regions. The momentum could get extended further toward 61.8% Fibo. level, around the 0.6785 area en route to the 0.6800 mark, above which spot prices could aim to test the next relevant hurdle near the 0.6880 supply zone.

On the flip side, the 0.6640-0.6635 region (the post-RBA trough and the overnight swing low) now seems to act as immediate support ahead of the 0.6600-0.6595 zone. A convincing break below the latter might drag the AUD/USD pair to the next relevant support near the 0.6545 regions. The subsequent downfall will expose the 0.6500 psychological mark before spot prices eventually drop to the YTD low, around the 0.6460-0.6455 region touched in May.