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AUD/USD: dazzles in performance, despite risk aversion flows

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AUD/USD outperforms; after a run of hawkish RBA communique and news from China that NPC approved a mid-year expansion to its central budget for the first time since the Asian Financial crisis in 1998.


original-size.webpSource: Bloomberg


 Tony Sycamore | Market Analyst, Australia | Publication date: Tuesday 31 October 2023 07:58

A notable end to last week for the AUD/USD as it outperformed, despite a wave of risk aversion flows, which hit asset market ahead of the weekend on concerns around higher bond yields and the conflict in the Middle East.

The AUD/USD’s outperformance last week follows a run of hawkish RBA communique that was initially observed in their meeting minutes released in Mid-October - and a sequence of stronger-than-expected economic data in recent weeks that has included:

  • In September the unemployment rate, which fell to 3.6% vs 3.7% expected
  • Q3 Inflation (trimmed mean) increased to 5.2%YoY vs 5.0% expected
  • Q3 PPI rose by 1.8% vs 0.4% previous
  • Q2 GDP printed at 2.1% YoY vs 1.6% expected
  • Retail sales for September increased by 0.9% vs 0.3% expected.

RBA might increase rates due to an increase of Q3 inflation data

The stronger data has raised expectations the RBA will raise rates by 25bp to 4.35% when it meets next week. An RBA rate hike would contrast with the Fed, which is expected to keep rates on hold on Thursday's FOMC meeting, and provide softer forward guidance, which will likely see it keep rates on hold into year-end.

The divergence in central bank expectations between the Fed and the RBA, which has provided support for the AUD/USD is being reinforced by news out of China last week. Which said 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 displays a loss of momentum type that suggests the AUD/USD is trying to base at last week's .6270 low.

AUD/USD weekly chart


AUDUSD_2023-10-31_13-50-33.pngSource: TradingView

However, as viewed on the daily chart below, there is a good layer of short-term resistance at .6400c coming from recent highs and more significant resistance at .6520/30 from highs in August and September. The AUD/USD needs to break above both these layers of resistance to confirm a trend reversal is underway.

AUD/USD daily chart


original-size.webpSource: TradingView



This information has been prepared by IG, a trading name of IG Australia Pty Ltd. 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.

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