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

[MongiIG]

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.

 

Source: Bloomberg

 

Forex AUD/USD United States dollar Federal Reserve Inflation Financial crisis

 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

 

Source: 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

 

Source: TradingView

 

 

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