Strong GDP Data Lifts AUD After 50 Bps RBA Hike

Aussie Dollar News and Analysis

• Better-than-expected GDP data sees slight lift in AUD
• AUD/USD approaches the pre-pandemic low as US services data hints at continued Fed hikes
• AUD/JPY makes new yearly high as interest rate differential expands

Better than Expected GDP Sees Slight Lift in AUD

Australian GDP just managed to beat expectations of 3.5%, coming in at 3.6% on an annual basis. Household expenditure remained fairly strong and exports witnessed a sizeable improvement when compared to last quarter. Additionally, inventories experienced a drawdown, meaning that there is likely to be a boost in the current quarter due to inventory accumulation.

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AUD/USD Approaches Pre-Pandemic Low on Upbeat US Data

The Aussie dollar attempted to claw back losses against the dollar late on Wednesday after the positive GDP data. With major central banks looking to intentionally slow down economic growth in order to lower inflation, the robust GDP numbers provide a reason to continue hikes in subsequent meetings – supporting the Aussie dollar.

However, the US dollar remains incredibly strong, buoyed by aggressive Fed rate hikes, which continues to support the world’s reserve currency.

AUD/USD retraced after approaching the pre-pandemic level of 0.6680. This remains a barrier that is likely to be retested in the coming sessions. A break below, opens up the April 2020 level of 0.6580. Nearest resistance is likely to be a retest of the descending trendline which connected a series of prior lows earlier this year.

AUD/USD Daily Chart

Source: TradingView, prepared by Richard Snow

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AUD/JPY Prints New Yearly High on Widening Rate Differential

The yen continues to depreciate against a number of major currencies as global interest rates and bond yields rise. The Bank of Japan (BoJ) is committed to keeping sovereign borrowing costs low in order to support the local economy. The BoJ stands behind its cap of 0.25% of 10 year Japanese Government Bonds which is way lower than the comparable Australian yield of 3.7%.

As such, it isn’t surprising to see AUD/JPY march higher. The pair has printed above the prior yearly high of 96.90 and is approaching the 2015 level of 97.30. The RSI is nearing overbought levels which will be key to watch in the coming sessions in the event we see a move back below overbought territory. A retracement of the recent advance to 96.90 or even 94.75 could serve as a springboard for another move higher as the fundamentals remain unchanged. We continue to witness ‘jawboning’ from the BoJ and the Japanese government around recent yen moves but thus far there is no commitment to FX intervention or tightening of monetary policy.

AUD/JPY Daily Chart

Source: TradingView, prepared by Richard Snow

— Written by Richard Snow for DailyFX.com

Contact and follow Richard on Twitter: @RichardSnowFX