AUD/USD bounces from 0.7350 back to fresh daily highs above 0.7390

• Strong Australian GDP data has been unable to lift AUD/USD back to 0.7400.
• With RBA Governor Lowe reiterating the unlikeliness of negative rates, bulls came in to support the pair at 0.7350.

AUD/USD has recovered back into positive territory to around Tuesday’s 0.7390 highs, having briefly dipped as low as 0.7350 at around 12:00GMT. The pair currently trades with gains of just over 20 pips on the day, or 0.3%.

Strong GDP data fails to liven AUD bulls

Australian Real GDP growth came in at 3.3% QoQ in Q3 2020, stronger than expectations for a rate of recovery of 2.6%. That meant that the Australian economy was only 3.8% smaller than in Q3 2019 (versus expectations it would be 4.4% smaller), a solid recovery from YoY losses of 6.4% in Q2).

Market commentators noted that the latest GDP numbers ought to take pressure off of the RBA to ease policy further. Indeed, prior to the data, RBA Governor Philip Lowe reiterated his opinion that negative rates are highly unlikely to be deployed in Australia; the latest GDP numbers ought to reduce this probability even further.

However, AUD gains in wake of the data were very fleeting. On the week, AUD is still one of the worst G10 performers, and despite the Dollar Index (DXY)’s slide from the 91.80s to current levels in the 91.20s, is flat on the week.

Australia’s ongoing diplomatic rift with China over a high-level Chinese official’s recent posting of a fake picture depicting an Australian soldier threatening an Afghan child. The move by a Chinese official has led some to think that China is intentionally seeking to worsen ties, something which, given that China is far and away Australia’s most important trade partner (roughly one-third of all Australian exports go to China), has been keeping AUD traders cautious.

Rangebound AUD/USD eyes eventual retest of 0.7400

Despite AUD’s underperformance relative to most of its G10 peers, if USD continues to weaken at its present rate (i.e. if DXY dips below 91.00 by the end of the week), AUD/USD is likely to retest the recent November just above 0.7400. That would also bring into play a test of the year-to-date high at 0.7114. To the downside, support in the 0.7340 area (the 9 and 17 November highs and 30 November lows) still seems to be the most important level to watch and, below that, the 21-day moving average which has now risen to the 0.7300 level.

AUD/USD key levels