The Australian dollar continued its strong uptrend this week, reaching its highest point in over a year amid odds of divergence between the RBA and the Federal Reserve interest rates. The AUD/USD pair jumped to a high of 0.6710, up by 13.4% from its lowest point this year.
RBA and Federal Reserve divergence
The AUD/USD exchange rate jumped as investors predicted that the Federal Reserve and the Reserve Bank of Australia (RBA) would continue to diverge in the coming year.
On the one hand, economists believe that the Federal Reserve will continue cutting interest rates in the coming year. In a statement on Tuesday, Trump hinted that he will only nominate a Fed Chair who will be willing to cut interest rates even as the economic strength continues.
His statement was a reaction to the strong US GDP data released by the Bureau of Economic Analysis (BEA) on Tuesday. That report showed that the economy expanded by 4.3% in Q3, helped by robust consumer spending and AI investment.
That growth was much higher than what analysts were expecting by far, meaning that the economy continued to defy gravity this year
However, more data sent a warning about the economy. A good example of this is the consumer confidence report by the Conference Board.
The report showed that the country’s consumer confidence dropped sharply this month, continuing a trend that has been going on in the last five months. This is an important number because consumer spending is the biggest part of the GDP.
Wall Street analysts and Polymarket traders expect that the Federal Reserve will cut interest rates at least two times in 2p26
On the other hand, analysts are pricing in potential interest rate cuts by the Reserve Bank of Australia next year after recent data showed that inflation continued rising.
Minutes released on Tuesday showed that officials deliberated on whether to hike interest rates or not. They opted to leave rates unchanged at 3.6% so that they can observe inflation trends in the country.
Economists at some of the biggest Australian banks have a mixed opinion on what to expect next year. Belinda Allen, a top economist at CBA predicted that the bank will hike rate next year.
On the other hand, Luci Ellis, a senior analyst at Westpac, sees the bank leaving rates unchanged for an extended period, a move that the bond market supports. Data shows that the ten-year bond yield dropped to 4.75% on Wednesday from this week’s high of 4.83%. The five-year yield dropped slightly to 4.28%.
AUD/USD technical analysis
The daily timeframe chart shows that the AUD/USD exchange rate has been in a strong bull run this year, moving from a low of 0.5912 in April to the current 0.6700, its highest level in over a year.
It flipped the important resistance level at 0.6685, its highest point in April into a support level. The pair remains above the 50-day and 100-day Exponential Moving Averages (EMA).
Also, it remains slightly above the Supertrend indicator, a sign that bulls are in control for now. Therefore, the most likely AUD/USD forecast is bullish, with the next key target being the psychological level at 0.6800.
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