Technical Analysis

AUD/USD Price Analysis – Nov 07, 2023

By LonghornFX Technical Analysis
Nov 7, 20234 min

Daily Price Outlook

Despite a 25-basis-point interest rate hike by the Reserve Bank of Australia (RBA) on Tuesday, the AUD/USD currency pair failed to maintain its upward trend and experienced losses due to the strong performance of US Treasury yields. This rebound in US Treasury yields supported the US Dollar, helping it recover from its two-month low, which, in turn, contributed to the AUD/USD pair's decline.

Meanwhile, China's Trade Balance data for October revealed a decrease in the surplus balance, totaling $56.53 billion, in contrast to market expectations of an improvement to $81.95 billion from the previous reading of $77.71 billion. Notably, Exports (YoY) saw a more substantial decline of 6.4%, surpassing the expected decrease of 3.1%. As a result, the disappointing China Trade Balance data has the potential to weaken the Australian Dollar (AUD) against the US Dollar (USD).

Australia's Central Bank Raises Interest Rates and Adopts a Cautious Approach

It's important to note that Australia's central bank has resumed raising interest rates. They increased the Official Cash Rate (OCR) from 4.10% to 4.35% after maintaining it at the same level for four consecutive meetings. This decision follows recent data, such as the Consumer Price Index (CPI) for the third quarter, which indicated a greater increase than anticipated. Further, Australia's Retail Sales for September outperformed expectations.

The RBA is currently adopting a cautious approach. They are looking for additional evidence of increasing inflation before considering further rate hikes. While there is some uncertainty about the timing of potential rate increases by the RBA, their concerns regarding inflation may deter them from implementing rate cuts too soon in the coming year. In essence, the RBA is closely monitoring the data and won't hastily move towards additional rate hikes, but they are also exercising caution in avoiding premature rate cuts.

As a result, the rate hike by Australia's central bank has provided support to the Australian Dollar (AUD), but the cautious approach may restrict the extent of its gains against the US Dollar (USD).

Weakened US Economic Data and Its Potential Impact on the AUD/USD Pair

Moreover, the US Bureau of Labor Statistics has recently released some crucial economic data. The Non-Farm Payrolls (NFP) for October stood at 150K, falling short of the expected 180K and indicating a substantial drop from the previous month's 297K. The US Average Hourly Earnings (Month-on-Month) declined to 0.2%, failing to meet the anticipated 0.3%. However, on a year-over-year basis, it exceeded expectations, reaching 4.1%, which is higher than the projected 4.0%.

Furthermore, the US ISM Services Purchasing Managers' Index (PMI) declined from 53.6 to 51.8. On Thursday, the US Department of Labor reported an uptick in initial claims for unemployment benefits, rising from 212,000 to 217,000. The US Dollar Index (DXY) rebounded from a seven-week low, primarily due to improved US Treasury yields.

Hence, weak US economic data may potentially weaken the USD, favoring an upward trend for the AUD/USD pair.

AUD/USD Price Chart – Source: Tradingview
AUD/USD Price Chart – Source: Tradingview

AUD/USD - Technical Analysis

In the currency markets, the Australian dollar (AUD) against the US dollar (USD) presents an intriguing technical outlook as of November 7. Over the last 24 hours, the AUD/USD pair has seen a decrease of 0.85%, landing at a current price of 0.6433. The four-hour chart provides a granular view of the price action, with a pivot point marked at 0.6449, indicating a potential inflection point for the pair.

Key resistance and support levels frame the current landscape, with immediate resistance at 0.6582. Further ceilings are found at 0.6652 and 0.6786, which could cap upward movements. Conversely, support is firmly established at 0.6379, with additional floors at 0.6245 and 0.6175, likely to halt any southward price drifts.

From a technical indicator standpoint, the Relative Strength Index (RSI) sits at 46, just below the midpoint of 50, suggesting a tilt towards bearish sentiment without yet entering an oversold territory. The Moving Average Convergence Divergence (MACD) corroborates this bearishness, currently indicating a negative trend as the MACD line resides below the signal line.

The 50-Day Exponential Moving Average (EMA) provides further insight, with the current price above the 50 EMA at 0.6416, giving a glimmer of bullish sentiment in the short-term trend landscape.

Chart pattern analysis augments the price level data and technical indicators. The current pattern, which can be likened to a consolidation phase, indicates potential for either continuation or reversal. Candlestick analysis in the recent sessions would be necessary for additional confirmation.

In conclusion, the overall trend for AUD/USD could be considered bullish if the pair maintains above the crucial 0.6416 level, as indicated by the 50 EMA. The mixed signals from technical indicators suggest a cautious approach. Traders should watch for a decisive break above the 50 EMA and an RSI push above the 50 level to confirm the bullish scenario. The short-term forecast, given the current setup, anticipates the pair may test the immediate resistance level at 0.6582 in the upcoming sessions, should the bullish indicators align.

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