The Australian Dollar (AUD) gathers further steam on Thursday, motivating AUD/USD to advance for the fifth consecutive day and briefly hit fresh two-week highs near 0.6540, a region coincident with its provisional 55-day and 100-day SMAs.
The pair’s intense recovery comes on the back of the US Dollar’s inconclusive price action, mirroring the widespread lack of direction in the global markets in response to the US Thanksgiving Day holiday.
Australia: Slow progress still counts
Australia isn’t racing ahead, but the data suggests the economy is steadily moving in the right direction. Early November PMIs were decent: Manufacturing bounced back into expansion at 51.6 (from 49.7), while Services inched up to 52.7 (from 52.5).
Consumers are still spending too: Retail Sales rose 4.3% YoY in September, and the trade surplus widened to A$3.938 billion. Business Investment also picked up in Q2, helping GDP grow 0.6% QoQ and 1.1% YoY. It’s not exactly headline-grabbing growth, but it’s reassuring.
The labour market offered a little encouragement as well: October’s Unemployment Rate slipped to 4.3%, and Employment Change jumped +42.2K, all suggesting earlier soft patches may be behind us.
Where things get tricky is inflation. October CPI was hotter than expected, reinforcing the Reserve Bank of Australia’s (RBA) stance that policy needs to remain tight for now. Headline CPI hit a 17-month high at 3.8% YoY driven largely by housing, food and non-alcoholic drinks, and recreation/culture.
The trimmed mean CPI, the RBA’s preferred metric, also came in above forecasts at 3.3% YoY vs. 3.0% expected. The RBA expects headline at 3.3% and trimmed mean at 3.2% by year-end.
Worth remembering: This was the first full monthly inflation release since the Australian Bureau of Statistics (ABS) formally shifted away from quarterly-only CPI reporting.
China: A help, but not the main engine
China still plays a major role in shaping Australia’s outlook, but its own recovery remains patchy.
GDP rose 4.0% YoY in Q3 and Retail Sales gained 2.9% YoY in October. But elsewhere there were signs of a slowdown: the RatingDog Manufacturing PMI eased to 50.6, Services slipped to 52.6, and Industrial Production missed expectations at 4.9% YoY.
Trade conditions weren’t inspiring either, with the surplus narrowing from $103.33 billion to $90.45 billion in September.
Inflation was the one clear positive: Headline CPI finally turned positive at 0.2% YoY (helped by Golden Week tourism), while core CPI ticked up to 1.2%.
Meanwhile, the People’s Bank of China (PBoC) kept Loan Prime Rates (LPR) unchanged, as expected: 3.00% for the one-year and 3.50% for the five-year.
RBA: Not rushing into anything
The RBA kept the Cash Rate at 3.60% in early November, which came as no surprise. Policymakers aren’t eager to tighten again, but they aren’t buying rate-cut chatter either.
Inflation is still too sticky, the labour market too tight, and Governor Michele Bullock stressed that policy is already “pretty close to neutral”; it just needs more time to cool things down.
Also, the nearly 75 basis points of cuts already delivered haven’t fully worked through the economy yet. The RBA wants more evidence that consumption and demand are easing before shifting stance.
Markets have taken the hint: pricing suggests a nearly 96% chance of no move on December 9 and just over 8 basis points of hikes priced through end-2026, compared with around 92 basis points of easing expected from the Federal Reserve (Fed) in that period.
The November Minutes summed it up well: Stronger-than-expected demand coupled with sticky inflation and restrictive policy means patience for now, but softer employment or weaker household spending could bring rate cuts back into view.
Technical levels to watch
AUD/USD keeps its intense march north on Thursday, leaving behind the 0.6500 mark with certain conviction and opening the door at the same time to further gains in the short-term horizon.
Further north, the pair could retest the November high at 0.6580 (November 13), while breaking above the latter could put the October top of 0.6629 (October 1) back on the radar ahead of the 2025 ceiling of 0.6707 (September 17).
On the other hand, a drop beneath the key 200-day SMA at 0.6461 exposes a move to the November trough at 0.6421 (November 21), seconded by the October base at 0.6440 (October 14) and the August valley at 0.6414 (August 21). Extra losses from here could unveil a deeper pullback to the June floor of 0.6372 (June 23).
Momentum indicators remain mixed, as the Relative Strength Index (RSI) climbs to nearly the 54 level, although the Average Directional Index (ADX) weakens a tad toward the 13 region, indicating that the current trend lacks juice.
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Big picture: Upside bias, but cautious mood
AUD/USD still feels vulnerable. A clean drop through 0.6400 would raise the risk of a deeper correction. China’s uneven growth and ongoing trade uncertainties continue to weigh on sentiment.
But the RBA’s steady hand, gradual improvements out of China, and a softer US Dollar backdrop are giving the Aussie enough support to stay afloat. Any move higher, though, is likely to be steady and contested rather than a breakout rally.
GDP FAQs
A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.
A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.
When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.
