AUD/USD weekly outlook: With speculative vols rising, a low may have been seen

It was a good week for Australian dollar bulls, with the local currency rising above most major currencies (except CAD)
We may have seen an important swing low for AUD/USD, given the return of open interest alongside rising prices last week (and its defiance against a strong USD)
Local data is light this week, but traders will keep a close eye on the monthly CPI report
The RBNZ are expected to cut rates by 50bp this week to send their cash rate beneath the RBA’s for the first time in four years

Australia’s monthly CPI is in focus on Wednesday

We will have to wait until January until we see the RBA’s preferred quarterly figures, so for now traders will have to suffice with the monthly read. But it can shape expectations for the quarterly print and therefore impact the Australian dollar.

The monthly weighed CPI fell to a 3-year low of 2.1% in September, and any move below 2% could provide some excitement of a cut again given it would place inflation below their 2-3% band for the first time since March 2021. However, the RBA minutes once again reiterated that underlying inflation (quarterly trimmed mean) remains too high at 3.5%. So we may also need to see the monthly CPI drop notably in December to make a meaningful impact for rate-cut bets. And given AUD/USD has endured a multi-week selloff, I suspect bulls may have better luck capitalising on stronger-than-expected data around these levels.

Michelle Bullock is scheduled to speak at the annual CEDA conference on Thursday

Perhaps she could address the recently released inflation figures, but she has already said since the US election that it is too soon to speculate the impact Trump 2.0 may have on the Australian economy, making the topic a moot point already.

The RBNZ are expected to cut their cash rate by 50bp

If the RBNZ go for the full fifty, a cash rate of 4.25% would see it beneath the RBA’s 4.35% for the first time since 2020. But with that being the consensus, eye will be on whether they have an appetite to signal further cuts. Given the uncertainty surrounding Trump’s return to the Whitehouse, I suspect they will retain a data dependence stance and not provide an overly-dovish 50bp cut.

US data makes a comeback

After a week away from the spotlight, US data has made a return to the economic calendar. Even so, none of it is really grabbing me. The FOMC minutes will warrant a look, but we know the USD is rallying as markets continue to doubt a December rate cut given strong economic data and Trump 2.0m on the horizon.

It will be interest to see if US consumer sentiment improves following the US election, but again this is not likely to be a market mover.

Note that US Thanksgiving is on Thursday, which traditionally sees the US stock market rally into the close. Perhaps the ASX can catch a tailwind. I will release analysis this week looking more closely at the stats, because form memory there are some notable patterns.

AUD/USD futures – market positioning from the COT report:

Total open interest increased for the first week in seven to show the general derisking of AUD/USD may have come to an end
Speculative open interest (large speculator and asset managers) also increased alongside prices last week, to suggest an important swing low may have been seen
Large speculators remained net-long and close their most bullish level in nearly seven years
Asset managers slightly increased net-short exposure by increasing gross-shorts, while gross longs remained flat

AUD/USD technical analysis

A bullish inside week formed on AUD/USD to help it recoup some of its post-US-election losses. Which is not bad considering that the USD index rose to a fresh 2-year high and rallied for the last three days of the week. AUD/USD met resistance around the October low as suspected, the question now is whether it can break above it. I suspect it will.

A bullish divergence formed on the weekly RSI (2) within the oversold zone and is now above 50 to show bullish momentum on that timeframe. A bullish divergence also formed on the daily RSI (14) and on the cusp of moving above 50.

Prices are already higher at this week’s open and retesting the October low. A spinning top doji formed on Thursday to suggest a swing low formed at 0.6472, which could be part of a small bullish flag from the cycle low. I suspect AUD/USD is now ready to break above the October high and head for at least 66c, with the 161.1% Fibonacci level (0.6638) and 0.6650 level also in focus for bulls.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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