Aussie dips on soft confidence data

The Australian dollar has reversed directions in the Thursday session. AUD/USD is trading at 0.7487, down 0.39% on the day. In Asia, the pair rose to 0.7564, its highest level since July 6th. It has been a strong week for the Australian currency, as the US dollar remains under pressure. Even with today’s decline, AUD/USD is still up 0.88% this week.

Australian confidence takes a tumble in Q3

The NAB Quarterly Business Confidence index fell sharply in the third quarter, due to the lockdowns which were in effect for most of the quarter. The index dropped from 19 in Q2 to -1 in Q3, as confidence was down across all industries and states.  The NAB report noted that although businesses are pessimistic about the short term, there is stronger optimism looking ahead to 2o22.  The survey was taken before health restrictions were eased in Melbourne and Sydney, the country’s largest cities, which should translate into a stronger release for the fourth quarter.

The RBA minutes reiterated that the central bank does plan to raise interest rates before 2024. However, the markets are much more hawkish and have priced in a hike for mid-2022. The market optimism is based on expectations that the economy will improve as lockdowns have been eased and vaccination rates are rising higher. As well, central banks are going through a tightening cycle – the RBNZ raised rates earlier in October and the BoE is widely expected to hike next month, and the RBA may not want to be left behind.

Investors are watching closely to see if the RBA steps in and changes its guidance on the rate outlook. If it does, the Australian dollar could be the big winner. The currency has gained an impressive 3.64% in October, and barring a major collapse, is headed for its best month in 2021.

AUD/USD Technical 

• The pair tested resistance at 0.7532 in the Asian session. Above, there is resistance at 0.7624.

• 0.7476 is under pressure in support and could break later in the day. This is followed by 0.7328.