AUD/USD rally faces setback: RBA rate hike and Powell's hawkish stance spark market dynamics

A roughly 3% rally in the AUD/USD during the initial three sessions of November was erased last week, following a dovish RBA rate hike and hawkish comments from Federal Reserve Bank (Fed) Chair Jerome Powell.

While we do not intend to diminish the significance of the Fed Chair's hawkish tone last week, we interpret it as a strategic response to the pronounced easing in financial conditions since late October, encompassing the pricing in of 100bp rate cuts for 2024. This adjustment is not viewed as a reversal of the more cautious tones prevalent in the second half of October and during the November FOMC meeting.

Amid a packed schedule of Fed speakers and a resurgence of financial conditions after Friday's stock market surge, the likelihood of additional hawkish rhetoric this week is notable, especially if Wednesday's US October inflation report surpasses expectations.

Shifting the focus to key local events for the AUD/USD this week, the Q3 wages data on Wednesday is anticipated to be supportive. The minimum wage reviews from June, resulting in a 5.75% rise in award wages, are expected to drive a 1.3% QoQ increase in quarterly wages, pushing the annual rate to 3.9%.

The labour force report for October, set for release on Thursday, is expected to reveal a +24k increase in employment, with the unemployment rate predicted to rise to 3.7%. The participation rate is also anticipated to climb to 66.8%.

In its recent Monetary Policy statement, the RBA adjusted down its forecasts for the unemployment rate to 4.25% by the end of next year, down from the previous estimate of 4.5%, reflecting a persistently tight labour market despite a 425bp increase in interest rates.

AUD/USD technical analysis

In our update last week here, we noted the importance of resistance at .6520/30. Specifically, we said that: "Should the AUD/USD close above here post tomorrow's RBA meeting, it would confirm a medium-term low is in place in the AUD/USD at the recent .6270 low and open up a move towards the next layer of resistance at .6600/20."

After touching a high of .6523 on Monday last week, the local unit closed lower for five straight sessions to finish the week -2.42% at .6360. Its rejection from above .6500c leaves the AUD/USD still requiring a sustained break above resistance at .6520/30 to confirm a trend reversal. Until then, downside risks remain, including a possible test and break of the October .6270 low.

AUD/USD chart

• _{Source Tradingview. The figures stated are as of 13 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.}