AUD/USD suffers its steepest weekly decline in four months

US dollar strength pressures AUD/USD

Last week proved challenging for AUD/USD, which closed 1.84% lower at 0.6461, marking its steepest weekly decline in nearly four months.

AUD/USD came under renewed pressure as the US dollar gained strength following hawkish comments from Federal Reserve (Fed) Chair Jerome Powell. Powell noted he wasn’t 'in a hurry' to lower interest rates, which reduced the likelihood of a 25 basis point (bp) Fed rate cut in December to 60%, down from 82% earlier in the week. This increased the odds of a potential 'skip' in December.

Global factors intensify AUD/USD challenges

Two major global factors are compounding the pressure on AUD/USD:

• 'Trump Trade': which includes tariffs and tax cuts expected to boost inflation, support US yields, and strengthen the US dollar
• Chinese stimulus: China’s underwhelming stimulus measures, paired with weak inflation, industrial production, and credit growth data, highlighting that the People’s Bank of China’s (PBoC) easing policies are insufficient to drive a strong recovery.

Domestic data takes a backseat

Australia’s employment data painted a mixed picture. The unemployment rate held steady at 4.1%, but employment growth fell short of expectations, adding only 15,900 jobs compared to the forecast of 25,000.

Despite this, a resilient labour market and persistent inflation have pushed market expectations for the Reserve Bank of Australia (RBA) to delay its first rate cut until May 2025.

RBA meeting minutes

Date: Tuesday, 19 November at 11.30am AEDT

At its November meeting, the RBA left rates unchanged at 4.35% for an eighth consecutive meeting. The accompanying statement noted that higher interest rates are balancing supply and demand but emphasised that underlying inflation at 3.5% is 'still some way from the 2.5 per cent midpoint of the inflation target.'

The RBA reiterated its commitment to returning inflation to target, stating it would take necessary steps to achieve this. While the tone of the statement was hawkish, the subsequent press conference was more balanced, with Governor Bullock noting that current rates market pricing is 'reasonably on message.'

The meeting minutes are expected to provide a balanced perspective and offer insights into scenarios where monetary policy may need to remain restrictive for an extended period or, alternatively, where easing financial conditions could be necessary. This will be particularly relevant given the RBA’s more dovish gross domestic product (GDP) forecast.

RBA cash rate chart

AUD/USD technical analysis

AUD/USD recently rejected multi-month downtrend resistance at 0.6900 - 0.6910, stemming from the 0.8007 high of February 2021 and the 1.1081 high from July 2011. After its rapid decline, it is nearing multi-month trendline support at 0.6360 - 0.6350.

AUD/USD weekly chart

From its late September high of 0.6942 to last week's low of 0.6440, AUD/USD has fallen over 7% in just seven weeks. While this suggests a potential bounce, it would be premature to trade for it unless we see a test and hold of weekly trendline support at 0.6360 - 0.6350.

If AUD/USD experiences a sustained break of support at 0.6360 - 0.6350, it could extend its decline towards the October 2022 low of 0.6170.

AUD/USD daily chart

• _{Source: TradingView. The figures stated are as of 18 November 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.}