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AUD/USD hits yearly high on cooler us inflation and China boost

AUD/USD surged to .6693, its highest since January, driven by cooler US inflation and China’s property market measures. Upcoming RBA meeting minutes will be key.

Source: Getty Images

Last week was a stellar one for the AUD/USD as it finished at .6693 (1.37%) for its highest weekly close since the first week of the year. In the first instance, the AUD/USD was boosted by cooler US inflation data, which weighed on a tired US dollar and reinforced expectations of Fed rate cuts before year-end.

The second pillar of support for the AUD/USD came after the Chinese government announced a raft of measures on Friday afternoon to boost confidence in the Chinese property market. Measures announced included lowering deposit requirements and urging local governments to buy unsold homes and convert them into affordable housing.

While more needs to be done to completely revitalize the Chinese property market, last week's announcement appears to mark the conclusion of seven years of pain after XI Jinping famously said, "Houses are for living in, not for speculation."

After a mute response on Friday, the announcement's impact has flowed more readily through markets today. Evidence includes a 2% rise in the price of iron ore futures in Singapore to around $117.70 per tonne, while copper futures hit a new high today of $5.1990, up almost 3% at one point, following a 3.5% gain on Friday night.

We would expect the impact to continue to extend into the AUD/USD; however, before it does so, there is the small matter of the RBA meeting minutes, in which the RBA sounded less hawkish than feared.

RBA meeting minutes

Date: Tuesday, 21 May at 11.30am AEST

The minutes from the Reserve Bank of Australia (RBA)'s May meeting are scheduled to be released on Tuesday, May 21, at 11:30 am. At its board meeting in May, the RBA kept its official cash rate on hold at 4.35%, as widely expected. Despite a higher-than-expected Q1 inflation read, the RBA was less hawkish than feared as it retained a balanced bias, noting that it is not "ruling anything in or out".

The RBA revised its inflation forecasts for this year higher, leaving its inflation forecasts unchanged for the end of 2025 and the end of 2026. At the same time, the RBA revised its growth and unemployment forecasts slightly lower. The minutes will be closely scrutinised to determine what options the RBA Board considered at its Board meeting in May and any clues behind the RBA's less hawkish than expected tone.

RBA cash rate

Source: RBA

AUD/USD technical analysis

On the weekly chart, the AUD/USD has made an encouraging move towards the upper bound of the contracting multi-month bearish triangle. Downtrend resistance from the January 2023 .7158 high is currently at .6750ish. Uptrend support from the October 2022 .6170 low is at .6340ish.

AUD/USD weekly chart

Source: TradingView

Last week's post-US CPI surge above resistance at .6650/70 has increased the chances that the AUD/USD based at the April 19 .6362 low. Providing the AUD/USD continues to hold above support at .6670/50ish, it keeps the short-term uptrend intact and the AUD/USD on track for a test of downtrend resistance at .6750ish.

On the downside, the AUD/USD has initial support from the 200-day moving average at .6520ish and below that, a layer of support at .6480ish from swing lows in March and April, reinforced by the February .6442 low.

AUD/USD daily chart

Source: TradingView
  • Source: Tradingview. The figures stated are as of 20 May 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.

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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