The Reserve Bank of Australia (RBA) is expected to raise rates by 50 bps.
The Australian dollar is holding steadily above 0.6850 on positive China data as the RBA’s decision looms.
Aussie dollar traders should also be aware of Iron Ore prices, tumbling almost $50 a ton from YTD highs.

The Aussie dollar pares last Friday’s losses and edges up on the second trading day of July, gaining 0.76%, amidst a quiet North American session. At 0.6864. the AUD/USD reflects an upbeat market mood in the FX space.

European equities bounced, as well as the Asian ones, except for the China A-50 and the Hang Seng. That said, it depicts a mixed mood tilted slightly positively, maintaining the AUD bid. Also, better-than-expected manufacturing PMIs from China, mainly Caixin’s, is back in expansionary territory, despite late developments surrounding the coronavirus zero tolerance.

Another factor keeping the Australian dollar strong is the Reserve Bank of Australia’s monetary policy decision. The RBA is expected to hike 25 or 50 bps, though the base scenario for most analysts is the larger one.

In a note, analysts at TD Securities wrote, “We believe the RBA should hike the cash rate by more than 50bps at tomorrow’s meeting in light of strong domestic data prints. We had forecast a 65bps hike for the July meeting, but listening to Governor Lowe’s most recent guidance, explicitly stating the Board will discuss 25 or 50 at the July meeting, we shifted our call last week and expect the RBA to hike 50bps tomorrow.”

Elsewhere, the greenback recovered some ground, with the US Dollar Index (DXY) up 0.08%, sitting at 105.201. Australian dollar traders should be aware of Iron Ore prices, which have tumbled to $114.45 a ton from YTD highs around $160.00.

In the week ahead, the Australian economic calendar will feature the S&P Global Services and Composite PMIs for June, alongside the AIG Construction Index and the RBA’s monetary policy decision. Across the pond, the US docket will feature Factory Orders for May, ISM Non-Manufacturing PMIs, Fed speakers, and the US Nonfarm Payrolls report for June

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