RBA Preview: rates to new record lows

• RBA expected to cut rates to 0.75% amid the persistent global economic slowdown.
• The imbalance between the RBA and the US Fed adds to the long-term bearish case.
• AUD/USD to resume its decline on a break below 0.6730, the immediate support.

The AUD/USD pair is depressed near multi-year lows ahead of the Reserve Bank of Australia monetary policy meeting this Tuesday, as the central bank is largely anticipated to cut interest rates to a new record low of 0.75%. Odds for that to happen are about 80% ahead of the event.

The RBA has cut rates already twice this year, and while policymakers didn’t confirm they would take action this time, they left plenty of clues. Furthermore, the risks behind the global economic slowdown that spurred easing among most major central banks remain the same.

Particularly in Australia, the latest employment data showed that unemployment ticked higher in August, while inflation and growth remain depressed. Governor Lowe said last week that the local economy has come to a “gentle” turning point, but reiterated that growth will remain weak and below average. However, he also expressed more concerns about global economic developments, indicating that trade tensions between the US and China are the most significant risk to the Australian economy.

The rate cut is mostly priced in, but could anyway result in a substantial AUD slump, moreover considering the greenback’s broad strength amid demand for safety. That is, the main factors that hurt the Aussie, underpin the Dollar.

What also implies further slumps is the fact that the RBA has already cut twice and is expected to ease further, while the US Federal Reserve could cut once more, but has a more hawkish stance.

AUD/USD Technical Outlook

The AUD/USD pair is confined to a tight range ahead of the event, just below the 23.6% retracement of the July/August decline at around 0.6770 the immediate resistance. Daily basis, the risk is skewed to the downside, as the pair continues to develop below all of its moving averages, while technical indicators consolidate well into the red and near multi-week lows.

Shorter-term, and according to the 4 hours chart, the pair is neutral, as it is battling around a mild-bearish 20 SMA, while technical indicators advance just modestly, unable to extend their slopes beyond their midlines.

Beyond the mentioned 0.6770 level, the next resistance is 0.6810. This last seems stronger, and a break above it exposes the 0.6840/50 price zone. The main support is 0.6730, with a break below it exposing the multi-year low set this August at 0.6676.