AUD Short-Term Bulls Supported by Hawkish RBA and China

• RBA surprised again with a 25-bps hike to raise the official cash rate to 4.10%
• Rumoured China’s property market stimulus measures also created a positive feedback loop back into AUD/USD.
• Short-term minor uptrend in place for AUD/USD with key resistance to watch at 0.6790.

The Aussie dollar has been resilient against the US dollar since last Friday, 2 June ex-post better the expected US non-farms payroll/jobs data for May. The AUD/USD has managed to stage a rally of +1.45% to today’s 6 June current intraday level of 0.6662 at this time of the writing from last Friday’s low that has outperformed the EUR/USD (+0.16%) and GBP/USD (+0.05%) over the same period.

There are several short-term positive factors that are supporting this minor AUD/USD resilient condition.

Australian inflation condition remains sticky

Fig 1: Australia’s Monthly CPI Indicator as of Apr 2023 (Source: TradingView, click to enlarge chart)

The recent release of a more advanced monthly CPI indicator for April released last week has indicated an uptick in inflationary pressures; accelerated to 6.8% in the year to April 2023 from a gain of 6.3% gain the year to March 2023, the first increase in annual inflation since last December 2022 and almost reverted back to the 12-month moving average now at 6.99%.

In addition, the latest Melbourne Institute Monthly Inflation Gauge report was released yesterday, 5 June showed prices accelerated to a four-month of 0.9% month-on-month in May, above 0.2% printed in April and 0.2% forecasted. This report estimates month-to-month price movements for a wide range of goods and services across the capital cities of Australia. It aims to provide financial markets and policymakers with regular updates on trends in inflation.

RBA surprised with a 25-bps rate hike again

Fig 2: ASX 30-day interbank cash futures implied yield curve as of 5 Jun 2023 (Source: ASX RBA Rate Tracker, click to enlarge chart)

Hence, this latest set of key economic data has shown that the inflation condition in Australia remains “hot” where the central bank, RBA may choose to maintain its restrictive and tight monetary policy.

As of 5 June, the ASX 30-day interbank cash rate futures for the June 2023 contract have priced in a 33% chance of a 25-bps hike today to the OCR which was a stark contrast to a week ago when the expectations were “no change”.

Indeed, the RBA has surprised the market again today (for the second consecutive month) with 25 basis points (bps) hike to bring the official cash rate to 4.10%; it has lifted rates for the 112^th time in the past year and pushed borrowing costs to their highest level since April 2012.

The latest stance from RBA has indicated that rates are expected to stay longer than expected as sticky elevated inflationary concerns outweigh the risk of a liquidity crunch that can dampen growth prospects in the medium-term.

Positive animal spirits back in China’s stock market

In light of the recent dismal key leading economic data out from China, there have been media reports last Friday, 2 June that speculated that China’s top policymakers are working on a new basket of measures to support the faltering property market after existing policies failed to sustain a rebound and stabilize the property sector. Potential stimulative measures include a reduction in mortgage down payment in non-core neighbourhoods of major cities and further relaxation in the restrictions for residential purchases.

This potential impending stimulative measure has triggered a sudden positive reversal in China-related benchmark stock indices since last Friday. The Hong Kong China Enterprises Index (HSCEI) has rallied by +4% from last Friday’s low to today’s intraday level of 6,521 at this time of the writing and staged two consecutive prior weekly returns of +1.50% and +1.45% respectively, the best performance seen in the past two months.

Thus, this positive feedback loop has managed to spill over to the Aussie dollar given that Australia is one of the top trading partners of China.

AUD/USD Technical Analysis – Short-term minor bullish trend intact

Fig 3: AUD/USD minor trend as of 6 Jun 2023 (Source: TradingView, click to enlarge chart)

The price actions of AUD/USD have involved into a minor ascending channel in place since the 1 June 2023 minor swing low of 0.6460.

Short-term bullish momentum has resurfaced with a breakout above the 20-day moving average ex-post RBA monetary policy decision. Key short-term pivotal support to watch will be at 0.6600 and a clearance above 0.6710 sees the key medium-term range resistance coming in at 0.6790.

On the flip side, failure to hold above 0.6600 exposes the next support at 0.6460.