AUD/USD Climbs to Three-Week Peak as RBA Hawkishness Eclipses Soft GDP Numbers

Despite lackluster third-quarter growth data, the Australian Dollar extends gains against the weakening US Dollar, buoyed by the Reserve Bank’s resilient policy stance. Market participants increasingly price in a December Fed rate cut, which weighs on the Greenback and supports AUD strength. Upcoming US employment and services data will be critical for determining the pair’s next directional move.

The Australian Dollar has bounced back from initial weakness to reach a three-week high versus the US Dollar during Asia’s Wednesday trading session, defying a disappointing domestic economic print. This resilience underscores how divergent monetary policy expectations are currently outweighing growth concerns in the FX complex.

Economic Headwinds Meet Policy Support

The Australian Bureau of Statistics delivered sobering news on Wednesday, revealing that quarterly GDP expansion decelerated to 0.4% from 0.6% previously, falling short of the 0.7% forecast. On an annualized basis, growth came in at 2.1%, up from the prior quarter’s 1.8%, though this also disappointed consensus expectations.

The softer-than-expected readings initially triggered selling pressure around the Aussie during early Asian trading. However, the initial downside was quickly contained. The reason: Reserve Bank Governor Michele Bullock’s parliamentary testimony provided a decisive counterweight to the growth disappointment. Bullock emphasized the central bank’s vigilance on recent inflation trends, cautioning that persistent price pressures could necessitate a different monetary policy trajectory than markets have been assuming.

This messaging matters significantly because Australia’s inflation story remains sticky. The headline Consumer Price Index accelerated to 3.8% year-on-year in October from 3.5% the previous month, while the RBA’s preferred Trimmed Mean CPI ticked up to 3.3% from 3.2% in September. Both metrics remain elevated relative to the RBA’s 2-3% target band, implying limited room for aggressive rate reductions despite soft growth.

Dollar Weakness Provides Tailwind

Meanwhile, the US Dollar has retreated to its lowest point since mid-November, reflecting shifting expectations for Federal Reserve policy. According to CME FedWatch data, traders are now assigning a 90% probability to a 25-basis-point rate cut when the Fed meets on December 10. This dovish repricing of Fed odds is a significant headwind for the Greenback relative to commodity-linked currencies like the Aussie.

Additional weight on the US currency stems from market speculation surrounding the next Federal Reserve chair appointment, with suggestions that a more accommodative candidate may be selected. The prospect of lower US interest rates, coupled with tentative hopes for a Russia-Ukraine peace resolution, has fostered a risk-positive market environment that naturally favors growth-sensitive currencies over safe-haven alternatives.

The regional backdrop also offers modest support. China’s services PMI ticked down to 52.1 in November from 52.6 in October, though it exceeded the 52.0 consensus estimate and failed to derail the Aussie’s China-proxy narrative.

Traders are now positioning for fresh catalysts from the US ADP private employment report and the ISM Services PMI. However, the main event likely remains Friday’s Personal Consumption Expenditure Price Index release, which will be scrutinized intensely for clues about the Fed’s rate-cut trajectory and could prove pivotal for AUD/USD directional momentum.

Technical Landscape Points Higher

From a technical perspective, the AUD/USD pair has accomplished several bullish milestones. A recent breakout above a descending trendline (established from September’s swing high) combined with acceptance above the 100-day Simple Moving Average signals strengthening momentum among buyers.

The daily-chart oscillators are gaining positive momentum while remaining comfortably below overbought thresholds, validating the near-term bullish setup. Any corrective dips should attract fresh buying interest in the 0.6530-0.6535 confluence zone, a region now acting as support-turned-resistance.

Should the pair decisively reclaim the 0.6600 psychological level, the next meaningful hurdle appears near 0.6660-0.6665. In an extended bull scenario, the pair could ultimately test the year-to-date high just above 0.6700, touched during September trading.

On the downside, a convincing break below 0.6500 would shift the bias and potentially trigger weakness toward the 200-day SMA near 0.6465, with further losses conceivable toward the multi-month low around 0.6420 marked in November. A decisive close below 0.6400 would signal a more structural breakdown and likely ignite fresh selling from trend-following participants.

Summary: The AUD/USD landscape remains constructive, with the Australian Dollar’s policy support and US Dollar malaise providing the primary drivers. While near-term correction risk exists, the overall trajectory tilts toward further upside exploration, assuming Fed cut expectations remain anchored and regional growth concerns don’t intensify materially.