AUD/USD steadies below 0.6550 ahead of US PMI data, RBA policy announcement

• China's PMI data shows large contraction in manufacturing activity.
• US Dollar Index extends slide ahead of PMI data.
• RBA is expected to keep its policy rate unchanged at 0.75%.

After losing more than 100 pips last week, the AUD/USD pair staged a rebound on Monday and was last seen trading at 0.6538, adding 0.45% on a daily basis.

The data from Australia on Monday showed that Commonwealth Bank Manufacturing PMI in February improved 50.2 in February from 49.6 and beat the market expectation of 49.8 to help the AUD gather strength at the start of the week. However, China's Caixin Manufacturing PMI fell to an all-time low of 40.3 in February to show a large contraction in the sector's economic activity and reminded investors of the possibility of a global recession due to the coronavirus.

Eyes on US PMI data, RBA policy announcements

Nevertheless, the broad-based USD weakness allowed the pair to stretch higher during the European trading hours.

With the 10-year US Treasury bond yield, which at some point was more down 9% on the day, falling sharply and weighing on the greenback, the US Dollar Index dropped to a fresh monthly low of 97.40 on Monday. Later in the session, the Markit Manufacturing PMI (final) and the ISM Manufacturing PMI will be looked upon for fresh impetus.

During the Asian trading hours on Tuesday, the Reserve Bank of Australia will announce its interest rate decision and publish the monetary policy statement. 

Previewing this event, “we bring forward our rate-cut expectations from RBA following developments over the weekend," said Standard Chartered analysts. "We still forecast two 25bps rate cuts from the RBA in 2020, but we now see them in March and April; we had earlier expected rate cuts in April and Q3.” 

Technical levels to watch for