AUD/USD hits six-month high amid strong Australian economic data

Last week, the AUD/USD closed at .6748 (+1.21%), its highest weekly close this year. The rally was supported by soft US economic data, in contrast to firm Australian economic data and higher commodity prices.

Strong Australian economic data

Australia's run of stronger-than-expected economic data has continued after the upside surprise in the monthly consumer price index (CPI) indicator for May. The hotter inflation numbers were followed by stronger-than-expected retail sales and building approvals data. This combination has the Australian interest rates market pricing in a 33% chance of another Reserve Bank of Australia (RBA) rate hike before year-end.

Support from commodities and risk sentiment

Finally, the AUD/USD has received support from risk-seeking flows and higher commodity prices, best illustrated by the iron ore price hitting a one-month high last week. While we would love to give the AUD/USD’s report card straight 'A’s,” it would be remiss of us not to hand out a 'C' for its exposure to the Chinese economy, which is a known drag.

Divergence in US economic trends

At the other end of the spectrum, labour market, inflation, and activity data in the US have mostly been cooler than expected of late. This has heightened expectations that the Fed will deliver its first rate cut in September before a second rate cut in December, weighing on the greenback. This also provides a stark illustration of the divergence between the monetary policy outlook of the Fed and the RBA.

Local economic calendar

This week's local economic calendar is relatively quiet, with the main highlights being housing finance, business and consumer confidence surveys, the latter of which is previewed below.

Westpac consumer confidence

Date: Tuesday, 9 July at 10.30am AEST

In June, the Westpac consumer sentiment index increased by 1.7% to 83.6 points, marking the first rise in four months and the highest reading since February. Nonetheless, the index remains in “deeply pessimistic” territory as persistent inflation and high interest rates continue to weigh on Australian households.

Higher-than-expected inflation and the threat of an additional RBA rate hike before year-end are expected to weigh on consumer sentiment and offset the positive impact of the stage 3 tax cuts. Preliminary expectations are for the consumer sentiment index to fall -0.3% in July to 83.4.

Aus consumer confidence index chart

AUD/USD technical analysis

After many weeks of choppy sideways price action, the AUD/USD finally got its act together last week, breaking and closing above the mid-May .6714 high and multi-week trendline resistance at around .6710/20.

The close above .6710/20 significantly increases the chances that the AUD/USD based at the 19 April .6362 low. It also opens the way for the AUD/USD to extend its rally towards a cluster of horizontal resistance at .6870/00 before weekly downtrend resistance at .6980/.7000c, coming from the 2021 .8007 high.

On the downside, if the AUD/USD were to sustain a break below horizontal support at .6700/.6680, it would temper the upside enthusiasm and warn of a retest of the 200-day moving average at .6560.

AUD/USD weekly chart

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 8 July 2024. 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.}