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AUD/USD eyes fourth week of gains amid hawkish RBA, and upcoming economic events

After a strong rally, AUD/USD's prospects hinge on RBA meeting and Q4 GDP, with technicals signaling potential upsides.

Source: Bloomberg

After a third week of gains, the AUD/USD finished at .6676 (+1.33%), its highest weekly close in twenty weeks.

Last week's rally in the AUD/USD was driven by elevated commodity prices, positive risk sentiment, and a hawkish RBA, amid a weakening US dollar facing pressure from the Fed's dovish pivot and anticipated 125bp rate cuts next year.

Whether the AUD/USD can lock in a fourth week of gains and can continue to put shorts under pressure will depend to a large degree on two key events on the Australian economic calendar this week: RBA’s Tuesday Board meeting and Wednesday's Q4 GDP.

What to expect from RBA’s interest rate meeting tomorrow

At its meeting in November, the RBA raised the cash rate by 25bp to 4.35%. The RBA's first rate rise since June was widely expected, and the statement accompanying the decision retained a watered-down tightening bias.

While the RBA's communique since the November board meeting has sounded more hawkish, a string of data last week has brought some relief. Retail sales for October surprised to the downside at -0.2% MoM vs 0.1% expected. The Monthly CPI indicator, which hit a high of 8.4% last December, eased to 4.9% YoY in October, less than the 5.2% expected.

The cooler-than-expected monthly indicator should be enough to see the RBA keep rates on hold tomorrow. However, sticky "homegrown" services inflation driven by consumer demand means a February hike is still possible, and likely to hinge on the outcome of the December quarter (Q4) inflation data due for release in late January.

RBA cash rate chart

Source: RBA

AUD/USD technical analysis

We have been operating under the assumption that the AUD/USD likely established a medium-term low at the October .6270 level.

That said, the rally to today's .6690 high has not been smooth sailing by any stretch of the imagination, and has included a couple of testing retracements, such as last Wednesday's 100 point pullback from a high of .6676 into the .6571 low a day later. However, from that, we can probably learn a thing or two.

Ideally, we would prefer to position for further AUD/USD upside via pullbacks rather than chasing it at near to recent highs. To clarify, providing the AUD/USD remains above the 200-day moving average at .6580, reinforced by last week's .6571 low, we prefer to buy dips, looking for the rally to extend towards the next important resistance layer at .6800/20. Aware that a sustained break below the 200-day moving average at .6580 would negate the positive bias in the short term.

AUD/USD daily chart

Source: TradingView
  • Source TradingView. The figures stated are as of 4 December 2023. 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.

The information 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 Bank S.A. 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 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.

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