The Australian dollar finally enjoyed some upside in the first half of last week after many months of downward pressure. The initial breakout of the long-term downtrend that had been in play since January on the first day of the month quickly gained momentum. An overall optimistic RBA coupled with the Democrats winning majority in the House of Representatives during the US Midterms gave even more support to the AUD, enabling it to test resistance just above 0.7300, before the moves ran out of steam throughout Friday’s trading sessions.
The moves initially appeared technical, with the AUD reaching a double top near 0.7300 resistance and traders taking profits on the moves, but with the US printing strong producer price index late in the session, the AUD/USD losses extended and it closed the week at 0.7225.
Looking ahead and there are several key economic releases this week that should help drive the Australian dollar:
- Australian wage price index (Wed)
- Chinese fixed asset investment and industrial production (Wed)
- US CPI (Wed)
- Australian employment (Thu)
- US retail sales (Thu)
With the US Fed likely to keep raising interest rates whilst the RBA remains on hold, the attractiveness of higher US interest rates should keep the USD supported over the longer-term. As a result, if the AUD is to find any support short-term, it needs to see domestic data outperform. The RBA is unlikely to move on interest rates until it sees inflation and wage growth lift. Therefore Wednesday’s quarterly wage prix index will be closely monitored by traders. A strong number would likely see the AUD retest last week’s highs at 0.7302, however a weak number would likely put further weight on the Aussie and potentially see a 0.71 handle once again.
Head of FX Dealing, AFEX