Will AUD/USD continue its rally as Australian economy shows signs of recovery?

AUD/USD ends the week higher

AUD/USD finished higher last week at 0.6306 (1.57%), an admirable result considering last week's market turbulence.

The gains were supported by economic data indicating that the Australian economy is picking up momentum just when the United States (US) economy shows signs of stalling.

Australian GDP shows continued growth

Last Wednesday fourth quarter (Q4) 2024 gross domestic product (GDP) data showed the Australian economy expanded by 0.6% quarter-on-quarter (QoQ) for an annual rate of 1.3%. It was the Australian economy's 13th consecutive quarter of growth and the strongest quarterly rise since Q4 2022. Importantly, GDP per capita grew 0.1% QoQ, ending seven consecutive quarters of falls.

The rise in GDP supports the idea that growth in the Australian economy troughed at 0.8% year-on-year (YoY) in third quarter (Q3) and may reach the Reserve Bank of Australia's (RBA) forecast of 2.4% by year-end, driven by less restrictive monetary policy, increased household consumption, and strong public spending.

US economic data raises concerns

Conversely, US economic data, including the Institute for Supply Management (ISM) manufacturing purchasing managers' index (PMI), Automated Data Processing (ADP) employment, and non-farm payroll figures, did little to alleviate fears that US trade policy is contributing to an economic slowdown.

Factors influencing AUD/USD outlook

This week, the external factors likely to influence AUD/USD include:

• Risk sentiment
• US trade policy
• The impact of soft Chinese inflation data over the weekend, highlighting the path back to reflation will be a bumpy one
• US inflation data.

Locally, these are key drivers for AUD/USD this week:

• National Australia Bank's (NAB) Business Confidence index
• Westpac Consumer Confidence data.

Westpac Consumer Confidence

Date: Tuesday, 11 March at 10.30am AEDT

In Feburuary, the Westpac Australian consumer confidence increased by 0.1% in February to 92.2 from 92.1 in January.
Over the second half (H2) of 2024, the consumer mood improved significantly. However, the recovery stalled in recent months as continued pressures on family finances and a more unsettled global backdrop have countered expectations of interest rate cuts from the RBA.

The 'family finances vs a year ago' sub-index slipped 3.4% lower in February to 75.1, down 10.6% from its December peak but still up 18.9% on the low in May last year. The fall may be due to a larger than usual 'hangover' from the Christmas-New Year period. It may also be a sign that the boost from tax cuts and fiscal support measures has begun to fade.

Recent headlines about tariffs and trade wars are expected to counteract some of the positive news flow following the RBA's rate cut in mid-February. As such, a flat reading for March is likely to be viewed this week.

Westpac consumer sentiment index chart

AUD/USD technical analysis

After hitting a low of 0.6087 on the first trading day of February, AUD/USD undertook a 5.25% corrective rally to the recent 0.6408 high before turning lower again to last week's 0.6187 low.

Whether AUD/USD's correction is complete at the 0.6408 high and the downtrend has resumed is unclear. It is possible we have only seen the first two waves, and AUD/USD is missing another leg higher towards the 200-day moving average at 0.6500 - 0.6535 to complete the corrective sequence.

A sustained break above 0.6535ish would signal that the downtrend is over for AUD/USD and that a stronger rally is underway.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 10 March 2025. 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.}