AUD/USD bearish below 10 and 21-D SMAs

The greenback was mostly lower on Friday despite a good Q3 GDP number and the commodity complex benefitted. AUD/USD rallied from a 0.7021 low to 0.7104 in the US session and closed at 0.7091. 

The U.S. Q3 GDP report implied continued solid above-potential growth of 3.5% with a slight upward surprise relative to market expectations. 3.5% which was down from the 4.2% gain in Q2 - (Final domestic demand rose 3.1% with inventories adding an additional 2.1 ppts. while net exports subtracted 1.8 ppts. as imports surged 9.1%. The annual increase in the core PCE deflator rose to 2.0% from 1.9% in Q2).

Paul Ferley, Assistant Chief Economist at RBC explained that continued strong growth in conjunction with inflation measures moving higher are expected to keep the Fed tightening policy. "Our forecast assumes another 25 basis point hike before the end of this year and similar-sized hikes every quarter through the end of next year. This results in the upper end of the Fed’s target range rising to 3.50% by the end of 2019 from a current 2.25%."

However, there has been a lot of good news already priced into the greenback and rate differentials have come in a touch which helps AUD higher - (DXY drifted down from the YTD highs).

On a longer-term perspective, ING's Rob Carnell notes that the AUD's weakness is more than just a China story:

• "It's been all about the slowdown in global activity in 2018 that's weighed on the archetypal activity currency that is the Aussie dollar."
• "The RBA is quite happy with a weaker AUD - and despite some likely good inflation data next week (3Q CPI due Wed), we doubt that investors will have any solid reasons to chase the currency higher. Our team feel that any Australian CPI uptick next week will be transitory - with higher oil prices the main reason for stronger inflationary pressures."
• "We don't think underlying price pressures (wage growth) will pick up anytime soon - and that will keep the RBA hawks in check for a while longer. We could see a test of the 0.70 level over the coming week - and if we do go down and under here, look for 0.6930/40 as the next key support test."

AUD/USD levels

AUD/USD had taken out the 0.7040 recent low and remains bearish below the 10 and 21-D SMA.  "We look for gains to remain capped by the 55 day moving average at 0.7191 and the 0.7272 2018 channel and while capped here this will leave the market under overall pressure," analysts at Commerzbank argued, adding that below 0.7040 we have support at 0.6995. "Below 0.6995/75 targets 0.6827 the 2016 low."