AUD/USD recovers back towards daily highs around 0.7370 ahead of key GDP data

AUD/USD has edged back towards highs of the day around 0.7370 going into the Tuesday FX market close, spurred by an extension of broad USD weakness. As things stand, the pair trades with gains on the day of around 0.3% or just over 20 pips.

Traders turn focus to post-RBA speech from Governor Lowe and Q3 GDP data release

RBA Governor Lowe will speak at 00:00GMT, but as was the case following Tuesday’s RBA Rate Decision, high volatility in AUD is not expected. As a recap; the RBA kept its overnight cash rate target and 3-year Australian government bond yield target unchanged at 0.10% as anticipated and reiterated that the board is not expecting to raise rates from these levels for at least another three years. The RBA also maintained the parameters of its term funding scheme and reiterated that it is prepared to do more if needed with the size of the bond purchase program (which was increased to A$ 100B at the last rate decision) under review.

Meanwhile, the RBA statement noted that fiscal and monetary support is likely to be needed for some time in order to support the recovery and that addressing high unemployment ought to be a national priority. On which note, the RBA said that they expect a further rise in unemployment, despite strong employment growth in October. On the outlook for the economy, the bank came across as balanced; on the one hand, the RBA stated that the economic recovery is underway and recent data has been better than expected, but on the other, noted that the recovery is still likely to be uneven and dependent on policy support.

FX markets are more likely to give more attention to Australian Q3 GDP data, which is set to be released at 00:30GMT. Consensus expectations are for a reasonable 2.6% QoQ rise in GDP in the quarter, bringing the YoY rate of GDP growth back from -6.3% to -4.4%. The Australian economy’s recovery from the first national lockdown and shutdown in global trade in Q2 was likely hampered by a localised lockdown in Victoria given an outbreak of Covid-19 in the state.

Whilst AUD is likely to be sensitive to the data, it would likely take a sizeable miss on expectations in order to push markets to start pricing in negative rates in Australia again (which of course would be a big AUD negative).

AUD traders are otherwise likely to remain focused on any updates regarding Australia/China trade and diplomatic relations. Things are sour at the moment; China has refused to apologise to Australia for posting a fake picture of an Australian soldier murdering an Afghan child, accusing Australia of trying to "deflect public attention" from alleged war crimes by its soldiers in Afghanistan. Any move to normalise increasingly strained ties over the coming weeks might be greeted positively by AUD.

AUD/USD advances back towards 0.7375 resistance

Having rebounded from support around 0.7340 lows (9 and 17 November highs), AUD/USD is gradually moving back towards resistance around 0.7375, an area which coincides with the 24, 25, 26 and 30 November highs. Should this level go, this would open up a move back to November highs, which reside just above the psychological 0.7400 level at 0.7407. Just above these more recent highs is the early September high at 0.7414.

AUD/USD two hour chart