AUD/USD gains amidst hawkish signals: focus on CPI data and RBA outlook

Last week saw a second straight week of gains for the AUD/USD, closing 1.07% higher at .6585, its highest weekly close in four months.

The AUD/USD rally persisted as the USD slid post-weaker-than-anticipated US CPI data. Improved global risk sentiment, coupled with hawkish RBA tones and news of Chinese government support for struggling property developers, further fuelled the local unit's strength.

Whether that run will be extended will depend, to some extent, on the release of two key pieces of Australian economic data. The first of which is retail sales on Tuesday and the monthly CPI indicator on Wednesday.

What to expect from monthly CPI indicator

Earlier this month, the RBA raised the cash rate by 25bp to 4.35%. The RBA's first rate rise since June was widely expected after Q3 inflation surprised to the upside.

The past week, RBA communique has taken a more hawkish tilt, with the minutes from the board meeting noting that the bank's latest forecasts "were predicated on an additional one to two increases in the cash rate over coming quarters."

Speaking at the annual ABE dinner in Sydney last Wednesday night, RBA Governor Michele Bullock struck another hawkish note, stating that inflation remains too high and is "increasingly homegrown."

This week, the market is looking for the monthly CPI indicator to fall to 5.2% YoY from 5.6% in September. Presuming the monthly indicator does not surprise to the upside, the RBA will more than likely stay on hold at its meeting in December.

However, with inflation still well above the RBA's 2-3% target, there is good reason why the interest rate market is assigning a 45% chance the RBA will hike rates by 25bp in February to 4.60%.

Monthly CPI indicator chart

AUD/USD technical analysis

After four unsuccessful attempts, the AUD/USD broke through the .6520/30 resistance last week, only to encounter resistance at .6590, stemming from the 200-day moving average

While there is a likelihood that the AUD/USD could establish a medium-term low around October's .6270, we refrain from initiating new long positions before crossing the 200-day moving average (currently at .6585) and ahead of crucial Australian and US inflation data releases

However, post the data, should the AUD/USD see a sustained break above the 200-day moving average at .6585/00, it opens the way for the rally to extend towards the next important layer of resistance at .6800/20. Downside support is viewed at .6520/00.

• _{Source Tradingview. The figures stated are as of 27 November 2023. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation.}