AUD/USD: hawkish RBA and China's new budget
Despite global financial uncertainties and Middle East conflicts, the AUD/USD pair outperformed last week. What's behind its resilience?
Surprising resilience: AUD/USD defies risk-aversion
A notable end to last week saw the AUD/USD outperform, despite a wave of risk-aversion flows that hit the asset market ahead of the weekend. Concerns around higher bond yields and conflict in the Middle East were key drivers.
Hawkish turns: RBA signals and robust data
The AUD/USD's strong performance last week followed a series of hawkish RBA communiqués, initially observed in their meeting minutes released in mid-October, and a string of stronger-than-expected economic data, including:
- In September, the unemployment rate fell to 3.6%, compared to an expected 3.7%
- Q3 trimmed mean inflation increased to 5.2% YoY, versus 5.0% expected
- Q3 PPI rose by 1.8%, compared to 0.4% previously
- Q2 GDP printed at 2.1% YoY, against 1.6% expected
- Retail sales for September increased by 0.9%, versus 0.3% expected
- Rising Q3 inflation data suggests that the RBA may increase rates.
Central banks at a Crossroads: RBA vs Fed
The robust data has heightened expectations that the RBA will raise rates by 25 bp to 4.35% in its next meeting. This potential RBA rate hike stands in contrast to the Fed, which is expected to maintain rates during Thursday's FOMC meeting and provide softer forward guidance, likely keeping rates on hold into year-end.
The China factor
This divergence in central bank expectations between the Fed and the RBA has been reinforced by news from China last week. Reports indicate that the NPC approved a mid-year expansion to its central budget for the first time since the Asian Financial Crisis in 1998.
AUD/USD technical analysis
The weekly candle that formed last week indicates a loss of momentum, suggesting that the AUD/USD is attempting to establish a base at last week's .6270 low.
AUD/USD weekly chart
However, as seen in the daily chart below, there is notable short-term resistance at .6400, stemming from recent highs, and more significant resistance at .6520/.6530 from highs in August and September. The AUD/USD needs to break above both these layers of resistance to confirm that a trend reversal is underway.
AUD/USD daily chart
This information has been prepared by IG, a trading name of IG Markets Ltd and IG Markets South Africa Limited. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients. See full non-independent research disclaimer and quarterly summary.
Start trading forex today
Trade the largest and most volatile financial market in the world.
- Spreads start at just 0.6 points on EUR/USD
- Analyse market movements with our essential selection of charts
- Speculate from a range of platforms, including on mobile
Live prices on most popular markets
- Forex
- Shares
- Indices
Prices above are subject to our website terms and agreements. Prices are indicative only
