The AUD/USD currency pair resumes its remarkable close to-two-week long streak of bullish uptrends. It’s around 0.6680 now, having touched the highest level since late October. This boom comes at a time of increasing alarm over inflation Down Under. New Reserve Bank of Australia Governor Michele Bullock has recognized these concerns. The RBA finds itself once again on the front line of a challenging economic situation fraught with increasing price pressures and a patchwork of growth signals.
In the past few months, the Australian dollar has appreciated sharply against the US dollar. It is currently heading for the important 0.6600 level. Analysts note that this represents a significant increase, reflecting sustained market interest and confidence in the Australian economy despite some underlying challenges. The pair’s Relative Strength Index (RSI) currently sits at 60 which shows strong buying pressure but without showing overbought conditions. As long as the AUD/USD remains above the breakout point and 100-day SMA, bullish sentiment stays intact. This very strong positioning now means there is a clear expectation of further bullish momentum.
As the current Governor Bullock has repeatedly said, inflation is not yet back in the RBA’s target band. The goal is still 2% to 3% per year, but we aren’t even close. Only last week, Australia’s headline Consumer Price Index (CPI) soared from an annual increase of 3.5% to 3.8% in October. Either way, the acceleration serves to spotlight soaring inflation across the country. The RBA’s Trimmed Mean CPI jumped up from 3.2% in September to 3.3% that month. This increase underscores the persistent, underlying inflationary pressures still present in the economy.
Now Australia’s annual GDP growth rate of 2.3 percent has fallen to its lowest level in 17 years. It is deeper than expected at 2.1%, below the consensus forecast and very modestly better than a revised 1.8% from last quarter. This disappointing growth figure should be ominous not only for the health of our economy, but the future of it too. It further muddies the RBA’s policy path going forward.
Currently, inflation is the RBA’s overriding focus. “As we keep a sharp eye on unprecedented inflation numbers,” said Governor Bullock, “the state bank is focused on providing stable funding sources…” She cautioned against dismissing persistent price pressures, warning they could force the Reserve Bank’s hand on monetary policy. Here’s how this change could inform its future trajectory. This is a fine line for the RBA to walk. It desperately needs to facilitate economic growth so we can stop inflation, but it also needs to help lower inflation.
Technical indicators have supported the AUD/USD pair’s recent performance. The daily Moving Average Convergence Divergence (MACD) histogram has just turned positive and is increasing. This continues to boost the bullish outlook on the currency pair. Last week saw the breach of a descending trend line established earlier in the year, signaling a potential shift in market sentiment.
For good reason, participants in the markets are hanging on every new economic report that’s just around the corner from America. That includes the big ADP report on private-sector employment and ISM Services PMI, both released on Wednesday. Combined with monthly employment reports, these new quarterly reports will provide much deeper insights into the U.S. labor market and economic activity. This kind of information may help shape the USD’s performance versus the AUD.
Today, the USD is trading right near its weakest level since November 14. This absence of global shocks creates a supportive backdrop for the Australian dollar. Traders are really moving quickly on this news. The connection between the RBA’s monetary policy approaches and U.S. macroeconomic metrics will continue to direct AUD/USD pair’s directions.