US Dollar Outlook: AUD/USD Primed for Volatility as RBA Looms

• The US Dollar traded mixed on Monday despite the broader DXY Index eking out a 0.2% gain

• Yields on ten-year Treasuries held steady around 140-basis points as the bond selloff simmers

• AUD/USD price volatility could intensify surrounding the RBA interest rate decision on deck

US Dollar bulls attempted to extend the DXY Index rebound off multi-year lows on Monday. The US Dollar strengthened a bit further against the Euro and Yen even though the ten-year Treasury yield fluctuated little between 1.40-1.45% during the session. This was offset by gains across commodity currencies with USD/CAD declining 94-pips and AUD/USD advancing 66-pips. On balance, the broader DXY Index notched a modest 0.2% rise to trade near the 91.00-price level.

Chart by @RichDvorakFX created using TradingView

US Dollar strength over the last few trading sessions has corresponded with a bullish MACD crossover and upswing in the relative strength index. The latest stretch of US Dollar demand drove the DXY Index back above its 50-day simple moving average. Although, in light of the 100-day simple moving average lurking overhead, the US Dollar bears might look to soon fade the rally. This potential area of technical resistance around the 91.00-handle could keep a lid on the Greenback – particularly if US interest rate differentials turn less attractive as the bond selloff stagnates.

Shifting focus to US Dollar implied volatility readings we see AUD/USD price action is expected to be the most active during Tuesdays trading session. This is judging by AUD/USD overnight implied volatility of 14.7%, which is above its 20-day average reading of 9.7% and ranks in the top 78thpercentile of measurements taken over the last 12-months.

Potential for elevated AUD/USD price volatility likely stems from high-impact event risk surrounding the Reserve Bank of Australia interest rate decision due 02 March at 03:30 GMT. Though the RBA decision is widely expected to reflect no change in monetary policy, forward guidance from RBA Governor Lowe on the central banks bond buying program could impact the Australian Dollar and AUD/USD price action materially.

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