Reserve Bank of Australia Preview: Optimistic but on hold

• The Reserve Bank of Australia is expected to maintain its monetary policy unchanged.
• Investors hope for positive hints about progress in economic developments.
• AUD/USD has a limited bullish potential according to long-term technical readings.

The Reserve Bank of Australia is having a monetary policy meeting early on Tuesday, although it is widely anticipated to maintain rates at a record low of 0.1% and its commitment to yield-curve control, maintaining the target for the three-year government bond also at 0.1%.

Rising government bond yields amid hopes for an economic comeback, not only affected the US, as Australian yields also soared. However, policymakers were quick to respond, ramping up bond purchases in March. "The Bank is prepared to make further adjustments to its purchases in response to market conditions," RBA Governor Philip Lowe said back then.

RBA looking at the employment sector

The central bank is expected to maintain its optimistic economic outlook unchanged. Policymakers have repeated multiple times that the economy is doing better than anticipated, but the high levels of uncertainty remain.

Vaccine developments have boosted hopes for further economic improvement, although, in Australia, vaccine rollout was set to a slow start. The country has kept the virus under control amid a strong political will, saving lives but at the cost of hurting mainly small business. Punctual and strict lockdowns ever since the pandemic started, has brought the country to report 909 total deaths, and 58,173 cases of COVID-19.

Speculative interest is waiting for any hint on increased economic strength that may result in a sooner-to-come tightening announcement. However, chances are quite limited. The RBA has said that the employment sector would not recover before 2024. Until the sector comes back, rates are meant to remain at record lows.

AUD/USD possible scenarios

The AUD/USD pair is recovering in the near term, but in the daily chart, the bullish potential is quite limited. The pair is incapable to advance beyond a bullish 100 DMA, while the 20 SMA develops below it, although without directional strength. Technical indicators, in the meantime, advance just modestly within negative levels.

Markets are optimistic about their return after a long weekend, weighing on the greenback. US Treasury yields are on the rise, which may end up benefiting the American currency in the next few hours.

Ahead of the RBA, the pair is mildly bullish in the near term but overall neutral. In the 4-hour chart, it is above a flat 20 SMA, while the longer moving averages head modestly lower above the current level.

The pair could advance towards the 0.7730/70 price zone on a break above 0.7675, while a disappointing outcome and a break below 0.7600 could see the pair retesting the year low at 0.7531.