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The Australian Dollar is trading with a bid tone across the European open on Tuesday. The rally comes despite the RBA holding rates unchanged overnight at its July monetary policy meeting. On the back of two consecutive unexpected rate hikes there had been speculation that the RBA might look to hike again into this meeting. However, these hopes were mostly dashed last week as the latest round of Aussie inflation data saw CPI cooling sharply last month.
 

Expectations Split Ahead of August

In line with the latest drop in CPI, the RBA opted to keep rates on hold at this meeting. However, looking ahead the bank stuck to its message that further tightening might still be warranted. Looking at the market pricing for the August meeting, the market looks fairly evenly split over rate-hike expectations. Consequently, incoming inflation data ahead of that meeting will be crucial. If the drop in inflation is seen continuing, this should send RAB rate hike expectations lower. However, if inflation is seen rising again, or showing stickiness around current levels, this should push RBA rate hike expectations up near-term.
 

Technical Views

AUDUSD

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The Aussie is once again trying to rally back above the .6681 level. If bulls can get back above here, the focus will be on a further push higher towards the highs around .6857, in line with rising momentum studies indicators. Failure around the current pivot, however, will see .6535 come back into view as next support. 

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