AUD/USD struggles below 0.7400 on coronavirus woes, RBA in focus

• AUD/USD edges higher after a positive start to the week.
• US dollar weakness saved the bulls but can’t win over covid concerns, pre-RBA caution.
• Virus weighs on data from Australia, China and the US.
• Local lockdown could probe RBA hawks, statement on tapering, economic forecasts will be the key.

AUD/USD begins Tuesday’s Asian session on a back foot, fades the previous day’s corrective bounce around 0.7360 as traders turn cautious ahead of the key Reserve Bank of Australia (RBA) monetary policy meeting. Even so, the quote remains inside an immediate trading range above 0.7355.

The Aussie pair earlier cheered broad US dollar losses and a bit of easy covid numbers at home. However, downbeat data and fears that the Delta covid variant will challenge the RBA’s hawkish promise for September seem to weigh on the pair of late.

An easing in the national covid count from 259 to 229, coupled with the Aussie government’s action to add more testing centers and a tough travel bubble between the New South Wales (NSW) and Victoria challenges AUD/USD bulls the previous day. The Australian dollar also benefited from China’s plans to help state-backed enterprise and the US Senators’ optimism over President Joe Biden’s infrastructures spending plan.

However, downbeat Aussie PMIs and TD Securities Inflation for July joined fears of a slowdown in Chinese activities, backed by recent PMIs, probed the AUD/USD buyers earlier on Monday. Following that, weaker-than-expected US ISM Manufacturing PMI for July added concerns that the virus strain challenges the economic recovery.

While the economic fears should have ideally put a safe-haven bid under the US dollar, the Fed’s rejection to taper and fears of lesser bond demands, due to the Japanese pension fund’s cut in the US bond weight, seemed to have kept the greenback pressured.

Amid these plays, US equities closed mixed and the US 10-year Treasury yields dropped six basis points (bps) to 1.179% by the end of Monday’s North American session.

Although the escalating risk-off mood weighs on the AUD/USD prices off late, amid fresh fears of Delta variant from the US and China’s local lockdown, the RBA decision becomes crucial for immediate direction.

Although the Aussie central bank is neither expected to alter the cash rate of 0.1% nor change the three-year target of 0.1% on government bonds, its comments over September bond purchase decision to cut buying from A$ 5 billion per week to A$ 4 billion will be eyed closely. Also, the economic forecasts will be additionally important. While market consensus favors AUD/USD bear’s return, after an upward start to the week, any surprises won’t be taken lightly as the Australian government battles covid with full force.

Read: Reserve Bank of Australia Preview: Dovish twist as lockdowns continue

Technical analysis

AUD/USD bears await a clear downside break of 0.7340 support confluence, comprising weekly rising trend line and highs marked during September–November 2020, before targeting the yearly low of 0.7288. The pair’s upside, on the contrary, needs a 0.7410-15 breakout, including early July lows and last week’s swing high, to aim for the 200-DMA near 0.7600. However, the bulls are less likely to be convinced below the key moving average. Overall, the quote remains bearish but the odds of a bounce can’t be ruled out.