AUD/USD rises on RBA hawkish stance and China’s credit surge

Last week saw the AUD/USD snap a five-week losing streak, following a more hawkish than expected RBA meeting, and as China credit data beat expectations.

Despite the RBA keeping the cash rate unchanged at 4.35%, and revising down its forecasts for core inflation (3.1% by end-24, from 3.3% previously), the RBA retained its tightening bias, noting that “a further increase in interest rates cannot be ruled out”.

Data released on Friday in China showed that Chinese banks extended CNY 4.92 trillion in new yuan loans in January, a record high since records began in 2004. At the same time, Total Social Financing (TSF), a broader measure of credit and liquidity, reached a record high of CNY 6.5 trillion in January, well above forecasts for CNY 5.55 trillion. The stronger-than-expected credit data will provide much-needed support from the embattled Chinese economy.

This week's critical local economic event for the AUD/USD is Thursday's labour force report for January.

What is expected from this week's Labour Force Report (Thursday, February 15th at 11.30pm)

Last month, the Australian economy lost a sizeable 65.1k jobs in December vs. the 15k gain expected. The unemployment rate remained unchanged at 3.9% due to a significant drop in the participation rate from 67.1% to 66.8%.

David Taylor, ABS head of labour statistics, said: "The fall in employment in December followed larger than usual employment growth in October and November, a combined increase of 117,000 people, with the employment-to-population ratio and participation rate both at record highs in November."

This month, the market is looking for the economy to add 37.5k jobs and for the participation rate to increase to 66.9%. This would see the unemployment rate rise to 4.0%, the highest since February 2022 and keep intact our view for two 25bp rate cuts in 2024, the first in August.

AU unemployment rate chart

AUD/USD technical analysis

Recently, we have been looking for the AUD/USD to stabilise and move higher based on the idea that the pullback from the December .6871 high is part of a correction, rather than a reversal lower. However, last week's break below .6500c has created a degree of technical damage and cast doubt over this interpretation, leaving us with a more neutral bias.

To restore a more positive outlook, the AUD/USD must see a sustained move above last week's .6540 high and then above the 200-day moving average at .6570. Aware that while below the .6540/70 resistance zone, the risks are for a test of support at .6400/.6380.

AUD/USD daily chart

• ^{Source:TradingView. The figures stated are as of 12 February 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.}