• AUD/USD bounces off one-month low as traders brace for RBA.
• Market sentiment remains sour amid optimism towards US and mixed headlines surrounding US-China ties.
• RBA eyes fourth consecutive 0.25% rate hike, surprise invitation to Aussie buyers on 0.50% rate hike can’t be ruled out.
• Australia trade numbers, Fed Chair Powell’s speech also important for fresh impulse.

AUD/USD bounces off the 0.6860 support confluence, picking up bids to around 0.6885 during early Tuesday in Asia as trader brace for the Reserve Bank of Australia’s (RBA) monetary policy meeting. Not only the key support and the pre-RBA consolidation but recent positives on the US-China might have also put a floor under the risk-barometer prices. Even so, the quote remains around the lowest levels in a month while searching for clear directions of late.

The Aussie pair refreshed its multi-day low, despite witnessing mixed data, as the US Dollar cheers receding fears of recession and the recent hawkish bets on the Federal Reserve (Fed), especially after Friday’s upbeat jobs and activity numbers from the US. Also exerting downside pressure on the quote were fears of US-China tension after the US shot down a Chinese balloon and pushed back a diplomatic visit to Beijing. However, the latest comments from US President Joe Bide appear soothing on the matter as he said, “The balloon incident does not weaken US-China relations.”

On Monday, US Treasury Secretary Janet Yellen and President Biden both turned down expectations of the US recession and underpinned the US Dollar strength. The greenback also cheered sustained run-up in the US Treasury bond yields and downbeat equities as traders renew hawkish bets on the Fed after strong US data.

On the other hand, Australia’s fourth quarter (Q4) Retail Sales disappointed but monthly inflation data from TD Securities managed to put a floor under the AUD/USD price. Additionally positive for the Aussie pair were risk-positive headlines surrounding the ties between Canberra and Beijing.

Following a virtual meeting between trade ministers of Australia and China on February 6, China’s Commerce Ministry said that Australian and Chinese trade and commerce ministers conducted pragmatic and candid exchanges.

Amid these plays, Wall Street closed in the red and the US 10-year Treasury bond yields extended the last Friday’s rebound, which in turn allowed the US Dollar Index (DXY) to remain firmer for the third consecutive day.

Moving on, AUD/USD traders may take clues from ANZ Commodity Price Index for January and Australian trade numbers for December ahead of the RBA Interest Rate Decision. That said, the Aussie traders are already aware of the 0.25% rate hike and hence only the hawkish guide from RBA Rate Statement and/or a 0.50% rate hike could recall the pair buyers.

Also read: Reserve Bank of Australia Preview: No choice but to keep hiking rates

It should be noted that Fed Chairman Jerome Powell is also up for a speech and will be observed closely for clear directions.

Technical analysis

Failure to break the 0.6860 support confluence, comprising the 50-DMA and 61.8% Fibonacci retracement level of the June-October 2022 downturn, triggered AUD/USD pair’s latest bounce. However, bearish MACD signals and a sustained closing below the three-month-old previous support line, close to 0.6930 by the press time, keep the Aussie bears hopeful.