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Abstract: The AUDUSD has broken through the key 200-day SMA and is currently at the recent support level of 0.6595. The hawkish remarks recently made by the Governor of the Reserve Bank of Australia (RBA) have narrowed the discount yield difference between two-year non-sovereign bonds and U.S. Treasury Securities. It is widely expected that tomorrow (November 29), Australia's CPI for October will weaken.

Fundamentals

Australia's retail sales unexpectedly fell in October, down -0.2% MoM, lower than the expected increase of 0.1%. This decline occurred after a period of growth, with a MoM increase of 0.9% in September and 0.2% in August.

Ben Dorber, ABS head of retail statistics, pointed out that "after a short increase in expenditure in September, retail turnover declined in October." This downturn has occurred in all retail categories except food retail.

Ben Dorber attributed the suspension of consumer spending to the strategic delay of consumers who may be waiting to take advantage of the Black Friday promotion in November. He observed that this phenomenon has become a recurring pattern in recent years, and the sales of Black Friday are increasingly welcomed by consumers.

Despite the pessimistic (seasonally adjusted) retail sales data on Tuesday, the AUDUSD still benefited from the weakness of the USD and rose for the fourth consecutive trading day. At the same time, the strength of the AUDUSD is mainly driven by the tough remarks of the newly appointed RBA Governor Michele Bullock, and Bullock's attitude is more hawkish than her predecessor.

In her speech last week, Michele Bullock emphasized that inflation in Australia is driven by domestic factors, not imported commodities such as crude oil. Therefore, it may be an arduous task for the RBA to reduce such high domestic inflationary pressure, which in turn may require higher interest rates.

At the same time, at the HKMA-BIS High-Level Conference held in Hong Kong (October 28), Michele Bullock said that the current monetary policy is restrictive, which is a necessary position to adjust demand and anchor inflation expectations.

Michele Bullock stressed that it is necessary to be "a little careful" during this period, aiming at controlling inflation and returning it to the target range of 2-3%. At the same time, we should be careful not to bring an excessive burden to the economy or lead to a sharp increase in the inflation rate.

Michele Bullock also pointed out that there has been a "second round effect" in areas such as wages, and pointed out that enterprises can now pass on increased costs to maintain profit margins, which reflects sufficient demand.

Market observation: At present, the tough attitude of the RBA has resurfaced, which has led to the narrowing of the discount yield spread of 2-year Australian government bonds relative to 2-year U.S. Treasury Securities since late October 2023. Moreover, it in turn has supported the continued bullish momentum of the AUDUSD.

In addition, the latest October CPI index of Australia released tomorrow (November 29) may be crucial because the market generally expects that the annual rate will slow down from the five-month high of 5.6% in September to 5.2%, which is consistent with the slowdown in global inflationary pressures.

Therefore, if the CPI unexpectedly rises in October, it may strengthen the current hawkish stance of the RBA, thus supporting the continued upward trend of the AUDUSD.

Technical Analysis

The AUDUSD has realized the expected rebound above the key short-term support at 0.6330, which hit an intraday low of 0.6339 on November 10, 2023, and touched the 0.6520 resistance level on November 15, 2023. Since then, its price trend has continued its short-term bullish momentum and broke above 0.6520 and the 200-day SMA yesterday.

The market has pulled back 35 points from the intraday high of 0.6632 and the bulls have managed to hold the 200-day SMA for a continuation to the upside. Moreover, the hourly Relative Strength Index has managed to bounce off the parallel support at the 50 level, suggesting that the short-term bullish momentum may be intact.

If the key short-term critical support at 0.6570 is not broken on the downside, bulls will extend their short-term upside move with the next intermediate resistance levels at 0.6675 and 0.6710 respectively.

Failure to hold the 0.6570 level would negate the bullish tone, exposing the next immediate support levels at 0.6520 and 0.6500. It is recommended to set the foundation against the key support.

Trading Recommendations

Trading direction: Long

Entry price: 0.6590

Target price: 0.6750

Stop loss: 0.6520

Deadline: 2023-12-12 23:55:00

Support: 0.6570, 0.6520, 0.6500

Resistance: 0.6546, 0.6675, 0.6710