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AUD/USD Weekly Forecast: Higher highs still likely amid appetite for risk

  • Soaring equities reflected the risk-on mood that backed the aussie.
  • Inflation-related uncertainty left market participants with a sour taste in their mouths.
  • AUD/USD retains its long-term bullish strength despite correcting from multi-month highs.

The AUD/USD pair is up for a third consecutive week, trading not far away from a fresh three-month high of 0.7545. The Australian dollar replicated Wall Street’s momentum, while speculative interest ignored the usually greenback-positive hints. Firmer gold prices played a supportive role, as the bright metal soared past $1,800 a troy ounce to trade at its highest level in a month by the end of the day.

Wall Street at record highs

The greenback had little chances against its commodity-linked rival after the yield on the 10-year US Treasury note touched and sharply retreated from the 1.70% threshold on Friday.  The week started in slow motion for the pair, as dismal Chinese data undermined demand for high-yielding assets to the benefit of the American currency. The world’s second-largest economy reported that Retail Sales were up 4.4% YoY in September, beating expectations, although Industrial Production in the same period advanced a modest 4.9%. Furthermore, the economy grew a modest 0.2% in the third quarter of the year, down from 1.3% in Q2.

The market’s mood changed as the week went by, compliments to US Q3 earnings reports. Upbeat results sent Wall Street to record highs undermining demand for the greenback, despite rising US government bond yields.

Market participants are still trying to price in what’s next from central banks. In the US, tapering is mostly priced in after the Federal Reserve suggested it would start trimming facilities in mid-November. But rate hikes might return to the spotlight amid stubbornly high inflation, and investors are wondering whether a hike is likely to come in 2022.

The Reserve Bank of Australia released the Minutes of its latest meeting, although there was nothing to see there. The document was pretty much a replica of the September statement, showing that policymakers are confident about the economic recovery but reiterated that a rate hike is unlikely until at least 2024.

Critical growth data coming in 

On the data front, the US published Initial Jobless Claims for the week ended October 15, which contracted to 290K, the lowest reading since the pandemic began. However, businesses keep suffering from a labor shortage. The Labour Department report showed that employment vacancies stood at 10.4 million in August after a record 4.3 million workers quit their jobs. The country also saw the release of the preliminary estimates of October PMIs.  The Services PMI improved to 58.2, beating expectations, while the Markit PMI fell to 59.2, missing the 60.3 expected.

Australia released the Commonwealth Services PMIs, with the Manufacturing index printing at 57.3 and the services one improving to 52. Also, the Westpac Leading Index printed at -0.2% in September, better than the -0.27% from the previous month.

The upcoming week will include a couple of first-tier events. Thursday will be a critical day, as the US will publish the preliminary estimate of Q3 Gross Domestic Product, foreseen at 3.2% QoQ, roughly half the previous 6.7%. Ahead of the event, the country will publish CB Consumer Confidence and Durable Goods Orders.

In Australia, the focus will be on the Q3 Consumer Price Index, seen rising at an annual pace of 3.8%, September Retail Sales are seen at 0.2%, while Q3 Producer Price Index is foreseen at 3.2% YoY.

AUD/USD technical outlook

The AUD/USD pair offers a bullish pose in the weekly chart, as it is currently advancing beyond its 20 SMA, which keeps heading south. Technical indicators are crossing their midlines into positive territory with uneven strength, reflecting bulls’ dominance.

The daily chart shows that the pair has corrected from extreme overbought conditions, and currently hovers around the 23.6% retracement of its latest daily advance. Technical indicators have partially lost their bearish momentum, somehow reinforcing the idea of a corrective slide before a new leg higher.

The 38.2% retracement of the mentioned rally comes at 0.7400, where buyers should surge to keep the bullish trend alive. A break below the level could lead to a test of the 0.7300/20 price zone. On the other hand, an extension beyond 0.7550 could anticipate a rally toward the 0.7620 level.

AUD/USD sentiment poll

The FXStreet Forecast Poll shows that market participants are betting on another leg north in the near term, as 50% of the polled experts are bullish, with an average target of 0.7518. The monthly and quarterly perspectives indicate that sellers outpace buyers, with the pair seen on average below the 0.7400 mark.

The Overview chart shows that the weekly and monthly moving averages maintain their bullish slopes, although the longer one is losing momentum, as most targets accumulate below the 0.7400 mark. The moving average is mildly bearish in the wider perspective, with the pair seen approaching the 0.7000 mark. 

Author

Valeria Bednarik

Valeria Bednarik was born and lives in Buenos Aires, Argentina. Her passion for math and numbers pushed her into studying economics in her younger years.

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