Australian Dollar Returns Some Gains But Stays Close To Year’s Highs

Australian Dollar (AUD/USD) Latest Analysis and Charts

• AUD/USD has surged thanks to an upside inflation surprise in Australia
• Local borrowing costs will probably stay ‘higher for longer’
• On current thinking, US rates are likely to fall first

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The Australian Dollar was a little lower on Monday but remains close to its 2024 peak thanks to some solid and enduring monetary policy support.

While most major central banks are either already cutting rates, or within sight of doing so, persistently high inflation has meant that the Reserve Bank of Australia will likely be among the very last to join that party.

Indeed, it’s not thought impossible that Australian rates could rise again this year following the release of May’s inflation numbers. They showed a surprise climb for consumer prices back above the 4{3da602ca2e5ba97d747a870ebcce8c95d74f6ad8c291505a4dfd45401c18df38} level- a six-month high.

However, even if rates merely stay on hold at current levels into year-end. that will leave Australian yields and the Australian Dollar looking attractive.

Monday’s economic data were sparse but interesting, with home loans and investment lending for homes both revealed to have fallen in May. Tuesday will bring the monthly snapshot of consumer confidence from Australian banking major Westpac. The last look, for June, found Aussies still gloomy but a little less so than they were. More of the same will underline the RBA’s problem. Sullen consumers hardly suggest an economy crying out for the higher borrowing costs strong inflation could force on them.

After that focus will cross the Pacific to the United States where Federal Reserve Chair Jerome Powell is due on Capitol Hill for his regular Congressional testimony.

Australian Dollar Technical Analysis

Chart Compiled Using TradingView

The Aussie has powered above its previous broad-range top in the last three sessions but doesn’t yet look especially comfortable there. Bulls have pushed it through what had been key resistance at the first Fibonacci retracement of AUD/USD’s rise to the peak of December 28, 2023 from the lows of October 25.

That now comes in as near-term support at 0.67419.

If as seems likely this level can’t hold then a slide back below 0.67133 into the previous range seems likely, with the pair likely to remain within that band through at least the Northern Hemisphere summer trading period.

Further retracement support at 0.65704 looks very solid.

Still, various longer-term uptrends remain very much in place, including that from mid-April this year. Even if Aussie bulls can’t force the pace back to last year’s peaks, there seems little reason to expect serious falls for the currency while the fundamental picture remains so supportive.

–By David Cottle for DailyFX