AUD / USD recovers 0.7100 status, threat of bullish technical breakout amid risk and hawkish mood from the RBA

  • AUD / USD recovered to the status of 0.7100 on Tuesday amid a surge in risk appetite.
  • But strong Chinese trade data and hawkish interpretations of the RBA’s latest policy move also support the Aussie.
  • AUD / USD threatens to break north of a key descending trend channel.

The Aussie dollar continued to rise throughout Tuesday’s session, moving north of the $ 0.7100 level in recent hours as risk appetite continued to improve. This marks a recovery of over 1.5% from last Friday’s lows of just under 0.7000, with 0.9% of those gains coming Tuesday.

AUD / USD is now challenging the upper limits of a downtrend channel that has removed price action since early November. A break above this downtrend line, with which the pair is currently flirting just above 0.7100, would open the door for a strong rally to the next resistance area around 0.7170, ahead of the moving average. 21 days just below 0.7220.

Drive by day

The main driver of the resumption of risk appetite on Tuesday appears to be markets which assess past pessimism about Omicron’s impact on the economic outlook in light of growing evidence that infections are comparatively “mild.” But sentiment is also likely getting a boost as Chinese authorities signal plans to support the economy in 2022.

After declining its reserve requirement ratio by 50bp on Monday, which is expected to free CNY 1.2bn of liquidity from the Chinese banking system, the PBoC cut rates on its 25bp loan facility in an effort to support the market. rural sector and small businesses. Meanwhile, China’s powerful politburo on Tuesday pledged to keep economic operations within a reasonable range in 2022, while also promoting healthy developments in the real estate industry.

Chinese economic optimism is helpful for the Australian given that China is Australia’s largest export destination. On that note, the Aussie was also boosted by the release of strong November trade figures from China during Tuesday’s Asia-Pacific session. Imports and exports have exceeded expectations “thanks to stronger demand and the alleviation of semiconductor shortages,” said Capital Economics, which added that the emergence of Omicron could offer additional support to companies. Chinese exports in the short term.

RBA falcon

Perhaps the most important factor that drove the AUD up on Tuesday was hawkish interpretations of the RBA’s latest rate decision. As expected, the bank kept interest rates at 0.1% and pledged to continue buying bonds at a weekly rate of AU $ 4 billion until February. But the bank, while conceding that Omicron was a risk to the outlook, said it didn’t believe the new variant would derail the recovery.

“The RBA has clearly positioned itself among the central banks (like the Fed) that do not currently see the new variant as likely to really dampen the stimulus package and policy,” said ING. “With still a lot of short positions to unwind, this is a notion that may continue to offer support to the Australian dollar in the weeks to come,” added the bank.

Meanwhile, a reference to inflation expected to be in the bank’s 2.0-3.0% range in 2023 was removed from the statement, which some analysts saw as the bank opening the door. to an earlier rate hike. Famous RBA observer Terry McCrann said: “It is clear that Australia is getting closer to a rate hike, not just potentially in 2023, but maybe even relatively early next year.”

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