AUD/USD: Bullish breakout ahead of monthly AU CPI data

  • AUD/USD has cleared above the key 200-day moving average now acting as a near-term support of 0.6595.
  • Consensus estimates are expecting a softer AU monthly CPI for October (5.2% vs. 5.6% Sep) for tomorrow, 29 November.
  • Recent hawkish rhetoric from newly appointed RBA governor Bullock has narrowed the discount yield spread between the 2-year AU sovereign bond over the US Treasury note.
  • Watch the key short-term support of 0.6570 on the AUD/USD.

This is a follow-up analysis of our prior report, “AUD/USD torpedoed towards key short-term support for a potential bullish reversal” published on 10 November 2023. Click here for a recap.

The AUD/USD has staged the expected rally right above the 0.6330 key short-term support as highlighted in our analysis where it printed an intraday low of 0.6339 on 10 November 2023 and hit the 0.6520 resistance on 15 November 2023.

Thereafter, its price actions continued its short-term bullish momentum as it cleared above 0.6520 and the long-term 200-day moving average (acting as a resistance at 0.6595) yesterday, 27 November 2023.

The recent impulsive upmove in the AUD/USD in place since 26 October 2023 has been primarily driven by renewed hawkish rhetoric of the Australian central bank, RBA under the helm of a newly appointed governor Michele Bullock who has a more hawkish vibe than her predecessor.

RBA governor Bullock highlighted in her recent speech last week that Australia’s inflation has been driven by domestic factors rather than imported goods such as oil, hence it is likely a challenging task for RBA to bring such elevated domestic inflationary pressure down which in turn may require higher interest rates.

Narrowing of the discount spread between the 2-year AU sovereign bond over US Treasury note

Fig 1:  AUD/USD medium-term trend as of 28 Nov 2023 (Source: TradingView, click to enlarge chart)

The current hawkish RBA resurgence has led to the discount yield spread of the 2-year Australian government bond over the 2-year US Treasury note to narrow since late October 2023 which in turn supports the ongoing bullish momentum of the AUD/USD.

In addition, the release of the latest Australian monthly CPI indicator for October tomorrow, 30 November is likely to be pivotal as the consensus estimates have indicated an annualized slowdown to 5.2% from September’s five-month high of 5.6%; in line with decelerating inflationary pressures seen globally.

Hence, if October’s monthly CPI surprises to the upside, it is likely to reinforce the current hawkish stance of RBA which in turn supports the ongoing short-term uptrend of AUD/USD.

Watch the key short-term support at 0.6570

Fig 2:  AUD/USD minor short-term trend as of 28 Nov 2023 (Source: TradingView, click to enlarge chart)

Today’s current pull-back of 35 pips from its intraday high of 0.6632 at this time of the writing has managed to hold at the 200-day moving average now acting as a near-term support of 0.6595.

In addition, the hourly RSI momentum indicator has managed to bounce off its parallel support at the 50 level which indicates that short-term bullish momentum may be intact.

If the 0.6570 key short-term pivotal support is not broken to the downside, the AUD/USD may continue its short-term impulsive upmove sequence with the next intermediate resistances coming in at 0.6675 and 0.6710.

However, failure to hold at 0.6570 negates the bullish tone to expose the next immediate support at 0.6520/6500 (also close to the upward-sloping 20-day moving average).

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Kelvin Wong

Kelvin Wong

Senior Market Analyst, Asia Pacific at OANDA
Based in Singapore, Kelvin Wong is a well-established senior global macro strategist with over 15 years of experience trading and providing market research on foreign exchange, stock markets, and commodities. Passionate about connecting the dots in the financial markets and sharing perspectives around trading and investment, Kelvin Wong is an expert in using a unique combination of fundamental and technical analyses, specializing in Elliott Wave and fund flow positioning, to pinpoint key reversal levels in the financial markets. In addition, over the last ten years, Kelvin has conducted numerous market outlook and trading-related seminars, as well as technical analysis training courses, for thousands of retail traders.