There is market uncertainty over the RBA Tuesday interest rate decision and the Australian dollar will come under heavy selling pressure if rates are cut, although unchanged rates look more likely with only around a 10% chance of a reduction at this meeting. There will be persistent fears over the global economy and this is likely to undermine confidence in the Australian currency. In this environment, the Australian dollar is likely to have a weaker bias, drifting weaker to 0.8360 ahead of the RBA decision and with a move to 0.8250 against the US dollar this week.

The Australian dollar was unable to break above 0.85 against the US dollar on Friday and was generally weaker in US trading. There was a retreat to below the 0.84 level in early Asia on Monday before a recovery back to the 0.8460 area as risk appetite attempted to recover. The economic data was generally weak with the PMI services-sector index below 50.