During Monday’s European session, the AUD/USD pair snapped its two-day losing streak, edging closer to 0.6570. The upward momentum was fueled by a retreat in the US Dollar (USD), which coincided with lower US Treasury yields. However, market sentiment remains cautious as investors brace themselves for the Reserve Bank of Australia‘s (RBA) upcoming policy decision scheduled for Tuesday.
The US Dollar Index (DXY) is currently hovering around 103.40, with the 2-year and 10-year US Treasury yields standing at 4.71% and 4.29%, respectively. Friday saw an uptick in US yields, driven by a hawkish sentiment surrounding the Federal Reserve, which is expected to maintain its elevated interest rates at Wednesday’s meeting in response to mounting inflationary pressures.
The Australian Dollar (AUD) found support amidst a recovery in the S&P/ASX 200 Index, although the Australian equity market faced challenges during Asian hours due to softer commodity prices.
Westpac predicts that the Reserve Bank of Australia will keep its cash rate unchanged at 4.35% during Tuesday’s meeting. RBA Governor Michele Bullock recently emphasized that inflation in Australia is predominantly “homegrown” and “demand-driven,” a result of a robust labor market and escalating wage inflation. The RBA anticipates this trend to persist until 2026.
Investors are also keeping a close eye on interest rate decisions from the People’s Bank of China (PBoC). Chinese Retail Sales (YoY) surged by 5.5% in February, surpassing expectations of 5.2% and the previous reading of 7.4%. Additionally, Chinese Industrial Production (YoY) witnessed a 7.0% increase, exceeding the market expectation of 5.0% for February, and the previous reading of 6.8%.
