The Australian Dollar (AUD) has managed to sustain its recovery against the US Dollar (USD) ahead of the release of crucial US Retail Sales data.
After facing significant pressure and touching three-month lows, the AUD is showing signs of stabilization as the USD corrects slightly downward.
Key Factors Behind AUD Recovery
- US Dollar Correction: The US Dollar Index (DXY), which measures the greenback’s strength against a basket of major currencies, has pulled back from its recent highs. This easing in the USD has provided some breathing room for the AUD to recover.
- Reserve Bank of Australia’s (RBA) Outlook: Comments from RBA Governor Michele Bullock have also played a role in limiting the AUD’s decline. Bullock emphasized that current interest rates are sufficiently restrictive and will remain unchanged until inflation stabilizes, which helped prevent further losses for the Australian currency.
- US Economic Data: The focus is now on upcoming US Retail Sales data, which could influence both currencies. A stronger-than-expected retail sales report could renew USD strength, while a weaker report might provide further support for AUD/USD recovery.
- China’s Economic Influence: As Australia’s largest trading partner, China’s economic performance significantly impacts the AUD. Recent data showed China’s retail sales rose by 4.8% year-over-year in October, surpassing expectations and providing a boost to the AUD, which is often seen as a proxy for Chinese economic sentiment.
Technical Outlook
- Support Levels: The AUD/USD pair is testing key support near 0.6400. A break below this level could lead to further downside pressure, potentially pushing the pair toward its yearly low of 0.6348.
- Resistance Levels: Immediate resistance lies at 0.6500, with further resistance at 0.6525 and 0.6553, corresponding to key moving averages like the nine-day and 14-day Exponential Moving Averages (EMAs). A break above these levels could signal a stronger recovery toward 0.6687.
Economic Data Impact
- Australian Employment Data: Australia’s employment data for October showed weaker-than-expected job growth, with only 15.9K jobs added compared to an expected 25K. This has contributed to reduced inflationary pressures and may influence future RBA decisions.
- US Producer Price Index (PPI): The US PPI rose by 2.4% year-over-year in October, higher than market expectations, which may affect inflationary expectations and influence Federal Reserve policy decisions moving forward.
Looking Ahead
Traders are closely watching US Retail Sales data for October, which is expected to rise by 1.9% year-over-year.
A strong retail sales report could reinforce USD strength and limit further recovery for the AUD, while a weaker-than-expected report might provide additional upward momentum for the Australian currency.