AUD's Rally May Continue, At Least In The Short-Term

The Australian dollar has rallied over the last week on the back of strong Chinese economic data, a more neutral tone from the RBA and US dollar weakness, after hitting its lowest level in almost three years around 0.8845 against the USD. Fears about a continued economic slowdown in China have weighed on the commodity currency, but recent positive data readings from China's manufacturing and industrial sectors are elevating these concerns and accommodating inflation is creating room for further growth stimulus from Beijing, all of which is positive for AUD.

The RBA's somewhat more neutral than expected tone at its latest policy meeting is causing some investors to question whether the bank's easing cycle is over. Despite cutting the official cash rate by 25bps, the board didn't seemed overly concerned about signs of weakness in key parts of the Australian economy and the labour market. Reduced expectations of further easing are bolstering the Aussie. However, the bank is notorious for keeping its options open, and if economic data continues to deteriorate the RBA may respond with further interest rate cuts.

In the near-term, China's encouraging data and excessive Aussie shorts are creating room for further possible upside. So far we haven't seen a turnaround in Australian economic data which would suggest that the RBA is done easing, thus AUDUSD upside may be capped. The pair is struggling with some resistance around 0.9220/30 -25% retracement level from May's high. A break here could see the pair to a significant resistance zone around 0.9355 and then 0.9435 - 38.2% retracement level.

Also, with the US dollar leading the market of late, a plethora of US economic data and speeches over the next week may determine the fate of AUDUSD in the near-term.

US retail sales (13th)
US PPI (14th)
Speeches by FOMC member Bullard (14th)
US CPI (15th)
US unemployment claims (15th)
Philly Fed Manufacturing Index (15th)
Preliminary University of Michigan Consumer Sentiment Index (16th)

IMOH, Clement I.
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