The Australian dollar has slipped on Friday. AUD/USD is currently trading at 0.7519, down 0.31% on the day. Still, the currency is poised to register a fifth straight winning week. The Australian dollar has sparkled in October, gaining 4.25%.
The week wrapped up with solid Australian data on Friday, but it wasn’t enough to extend the Aussie’s gains. Retail sales for September surprised on the upside, with a gain of 1.3% vs expectations of 0.3%. On an annualized basis, Retail Sales jumped 1.3% (YoY), but this gain was exaggerated by base effects, as there was a severe lockdown in place in September 2020. On the inflation front, PPI accelerated in the third quarter, with a gain of 1.1% (QoQ), ahead of 0.7% in Q2. On an annualized basis, PPI climbed 2.9%, vs. 2.2% in Q2.
The markets are still buzzing after the RBA took a pass and failed to defend its bond-yield target earlier this week. The non-move was highly significant since the bond-yield target is a key component of the bank’s QE programme. The April 2024 CGB yield has jumped to 0.75% on Friday, vs the RBA’s target level of just 0.10%. The RBA holds a policy meeting next week, and there is a growing possibility that the bank could decide to terminate its yield target at the meeting.
This development has raised expectations that the RBA will bring forward its rate guidance from 2024 to 2023, or even to H2 of 2022. Next week’s policy meeting will be interesting, and the Australian dollar could be the big winner if RBA policy makers accelerate the timeline for a rate hike. Core inflation has pushed into the RBA’s target range of 2-3% for the first time since 2015. Higher inflation levels are also putting pressure on the RBA to shift away from its accommodative policy and all eyes are on the November 2nd meeting.
- There is resistance at 0.7550, followed by resistance at 0.7624
- There are support levels at 0.7382 and 0.7297
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