Buckle up, because the Australian dollar (AUD/USD) is on a roll! Last week, it soared to its highest point since early September, closing at 0.6641 – a 0.65% increase. This surge is fueled by a cocktail of factors, including strong economic data and positive vibes in the market. But what exactly is driving this upward trend? Let's dive in!
The Aussie dollar found solid ground thanks to impressive figures from the third-quarter (Q3) Gross Domestic Product (GDP) report. While the overall GDP growth for the September quarter was a modest 0.4% quarter-on-quarter (QoQ), the underlying details were far more encouraging. Annual growth accelerated to 2.1% year-on-year (YoY), the fastest pace in two years. Plus, domestic final demand saw a robust rise of 1.2% QoQ. Following this, household spending data for October showed a significant increase of 1.3% month-on-month (MoM), resulting in an annual growth rate of 5.6% YoY – the quickest since September 2023. This paints a picture of a resilient economy.
And this is the part most people miss... These positive economic indicators have significantly shifted expectations for interest rates. The market is now pricing in a full 25 basis point (bp) hike by August 2026 and a total of 36 bp of Reserve Bank of Australia (RBA) rate hikes by December 2026. This is a dramatic shift from just a few weeks ago when rate cuts were anticipated. This contrasts with the United States (US), where the Federal Reserve (Fed) is expected to potentially lower rates. This divergence in monetary policy plays a key role in currency valuations.
Adding fuel to the fire, global risk sentiment remains positive, and key commodities are performing well. Copper futures, for instance, jumped by 2.72% last week, reaching their highest weekly close ever. This is great news for Australia, a country rich in resources, and naturally, it supports the AUD/USD.
Looking ahead, the upcoming RBA interest rate meeting on Tuesday and the Federal Open Market Committee (FOMC) meeting on Thursday will be critical in determining if the AUD/USD can maintain its upward trajectory.
RBA Interest Rate Decision: What to Expect
- Date: Tuesday, December 9th at 2:30 PM AEDT
At its last meeting in November, the RBA held its official cash rate steady at 3.60%, as widely predicted. The decision was unanimous, and it followed a rise in underlying inflation during the September quarter, exceeding both the RBA's and market forecasts. In its quarterly Statement on Monetary Policy, the RBA revised its inflation forecasts upwards, with trimmed mean inflation projected to reach 3.2% until mid-2026, only falling back to the 2.5% target in mid-2027.
Given the recent data – including a hotter-than-expected October inflation report, strong employment figures, and solid GDP and household spending data – the RBA is expected to keep rates on hold at 3.60%. The RBA will likely emphasize its 'data dependence' approach, meaning they will closely monitor incoming economic data before making any further decisions.
AUD/USD Technical Analysis: Navigating the Charts
After peaking at 0.6617 in late October, AUD/USD dipped to a three-month low of 0.6419 on November 21st. This low found support around the 0.6420 zone, a level that has acted as a floor since early August. From there, the AUD/USD has staged an impressive rally, climbing over 3.5% in just over two weeks. It has moved above its 200-day moving average (MA) at 0.6473 and broken through multi-month downtrend resistance originating from the February 2021 high of 0.8007, which corresponds to the 0.6600 level.
While the rally is now approaching overbought territory, the pair is currently challenging its next upside target – the 200-week MA at 0.6643. Above this, the next resistance level is the 0.6706 high from mid-September, followed by trend channel resistance around 0.6740. Further up, there are ambitious resistance targets at 0.6870 and 0.6940.
So, what do you think? Will the AUD/USD continue its climb? Do you agree with the market's expectations for future interest rate hikes? Share your thoughts in the comments below! This is a dynamic market, and your insights are valuable.
