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Abstract: On Wednesday, during the Asian session, the AUDUSD climbed to 0.6597. With the release of Australia's economic growth data, the AUDUSD rose slightly. However, the rebound of the USD and risk aversion may limit the further rise of the AUDUSD.

Fundamentals

Due to the impact of rising interest rates on consumers and trade activities, Australia's economy unexpectedly slowed down in the third quarter, with a slight MoM increase of 0.2%, which was lower than the expected increase of 0.5%. It increased by 2.1% YoY. However, when per capita GDP is considered, the situation is quite different, falling -0.5% MoM and -0.3% YoY.

Katherine Keenan, Head of National Accounts at the ABS, said, "This was the eighth consecutive quarterly GDP growth, but the pace of growth has slowed in 2023." She noted that government spending and capital investment were the main contributors to GDP growth in the quarter.

Of this, the government's final consumption expenditure increased by 1.1%. In addition, gross fixed capital formation increased by 1.1%.

An interesting aspect of the September quarter GDP was the 0.4 percentage point contribution to GDP from the change in inventories. Notably, mining inventories increased by AU$2.4B, reflecting a larger decline in exports compared to production.

On the other hand, trade in services has a negative impact on growth. Service imports increased by 8.4%, much higher than the 1.9% increase in service exports.

Central banks: On Tuesday, the Reserve Bank of Australia (RBA) kept its cash interest rate target unchanged at 4.35%, which is in line with market expectations. The latest statement of the RBA shows that it remains open to further interest rate hikes, but emphasizes that any such decision "will depend on data and changing risk assessment". This position reflects a cautious attitude, because the RBA is waiting for more comprehensive data, especially the fourth quarter inflation data released in January, and then hold its next meeting in early February.

In reviewing the "limited information" available since the November meeting, the RBA acknowledged that the data had been "broadly in line with expectations", and the October CPI update showed a continued slowdown in inflation, but did not provide substantial insights into the service sector inflation.

The RBA also stressed that the economic outlook "still has significant uncertainties". It points out the possibility of sustained inflation in Australia's service industry. Domestically, uncertainty includes the lag effect of monetary policy and residents' consumption patterns. On a global scale, the persistent uncertainty of China's economic trajectory and the wider impact of international conflicts are considered important factors affecting the Australian economic environment.

Market observation: Given the low tolerance of the RBA for the delay in the normalization of inflation, it is worth noting that the RBA did not provide much information about the inflation in the service industry in October.

The next two monthly inflation data and one quarterly data will provide more information. The doveish reaction in the market on Tuesday was mainly because the RBA made it clear that "wage growth is not expected to increase significantly further".

In addition, given the unusually long time until the next meeting, the market is expecting a more hawkish statement. Current expectations of a 200 bps rate cut by the Fed by the end of 2025 appear overly aggressive, compared to the very modest expectations of a 50 bps rate cut by the RBA by the end of 2025, which puts the RBA at a very high bar for achieving a more hawkish outcome.

Technical Analysis

The AUDUSD pulled back from a four-month high of 0.6690 for the second day in a row, despite the AUDUSD edging higher. However, fresh weakness below the 200-day SMA at 0.6578 undermined the bulls' momentum for further gains. Meanwhile, a rebound in the USD and pressure from the RBA's decision to keep interest rates unchanged could limit the AUDUSD's upside path.

Overall, the AUDUSD's break below the 0.6570 support level suggests that a short-term top has formed at 0.6689 after being rejected by the descending channel resistance, with a mild intraday bias to the downside. It is recommended to go short at the highs.

Technical Analysis

Trading direction: Short

Entry price: 0.6619

Target price: 0.6445

Stop loss: 0.6677

Deadline: 2023-12-20 23:55:00

Support: 0.6529, 0.6502, 0.6480, 0.6430

Resistance: 0.6578, 0.6591, 0.6614, 0.6663