AUD/USD regains strength in the short term
AUD/USD has been trying to rally higher since last week after hitting a two-year low of $0.62. The Australian dollar rebounded about 200 pips thanks to the renewed risk appetite of market participants since last week and the decline in US bond rates since the beginning of the week.
The AUD/USD has also benefited since last night from the acceleration of inflation in Australia, which reached its highest level since 1990 in the third quarter. Inflation rose to 7.3% from 6.1% in Q2, beating the consensus forecast of 7.0%, but that does not seem to drastically change investors’ rate hike expectations. The probability of a rate hike at the next meeting has certainly increased from 91% to 99%, but short-term bond rates at 1 and 2 years remain stable.
Although AUD/USD may continue to benefit from renewed risk appetite in the near term, the underlying outlook remains tilted to the downside. The deterioration in global economic fundamentals and outlook should worsen with the tightening of monetary policies, the global energy crisis and the Chinese economy’s difficulties in recovering.
This last point weighs even more on the Australian dollar given that Beijing is by far Canberra’s largest customer despite the geopolitical tensions between the two countries.
AUD/USD daily price chart – key levels