RBA's Hawkish Stance Propels Australian Dollar Near Three-Week Peak Against USD Despite Sluggish Growth

The Australian Dollar bounces back from early weakness triggered by disappointing Q3 economic data, establishing fresh three-week highs against the weakening USD during Asian trading on Wednesday. Despite the economy expanding at just 0.4% quarter-on-quarter—missing the 0.7% forecast and decelerating from the prior 0.6% reading—bullish sentiment around the AUD remains intact, underpinned by Reserve Bank of Australia policy signals.

The lackluster GDP performance failed to derail the Aussie’s upward momentum, as recent comments from RBA Governor Michele Bullock took center stage. Speaking before parliament, Bullock emphasized the central bank’s vigilance on inflation dynamics, signaling that persistent price pressures could restrict further monetary easing. This hawkish tone provided critical support for the currency at a time when market participants remain focused on diverging policy trajectories between the RBA and Federal Reserve.

Inflation concerns continue to justify the RBA’s cautious stance. Australia’s headline CPI accelerated to 3.8% year-over-year in October from 3.5% previously, while the Trimmed Mean measure climbed to 3.3% from 3.2% in September. Both readings rest uncomfortably above the RBA’s 2% to 3% target band, constraining policymakers’ capacity for rate cuts and supporting currency valuations.

Across the Pacific, the USD faces persistent headwinds from Federal Reserve speculation. Markets currently price in an approximately 90% probability of a 25-basis-point rate cut on December 10, according to the CME FedWatch Tool. This dovish Fed outlook, coupled with speculation surrounding the next central bank leadership, weighs heavily on the Greenback and creates favorable conditions for the risk-sensitive Australian Dollar.

China’s Services PMI added nuance to the regional narrative, dropping to 52.1 in November from 52.6 in October but still surpassing the 52.0 consensus estimate. While modest, the reading sustains underlying confidence in China-linked assets, indirectly benefiting the AUD through commodity demand channels.

Broader market sentiment tilts toward risk appetite, with expectations for potential peace developments between Russia and Ukraine bolstering equities and diminishing safe-haven demand for the USD. This environment continues to favor the Australian Dollar’s upside.

Technical Picture Suggests Further Strength

The AUD/USD pair has convincingly broken through a descending trend line originating from September’s swing high and established acceptance above the 100-day simple moving average. Daily oscillators display positive momentum while remaining below overbought thresholds, validating the constructive near-term bias. Any pullback should attract fresh buyers near the 0.6535-0.6530 confluence zone.

Sustained buying could push spot prices toward the 0.6600 psychological level, with the next technical objective spanning 0.6660-0.6665. Should conviction remain, the pair could eventually target the year-to-date highs just above 0.6700 achieved in September.

On the downside, a break below 0.6500 opens the door to the 200-day moving average near 0.6465, followed by the November low near 0.6420. A decisive close below 0.6400 would confirm a bearish reversal and trigger accelerated selling toward deeper support.

What’s Next?

Market participants await the US ADP employment report and ISM Services PMI for fresh directional signals. However, Friday’s release of the Personal Consumption Expenditure Price Index will carry outsized importance, as it will shape market assumptions about the Fed’s rate-cut trajectory and ultimately determine AUD/USD’s next significant move.