Australian dollar rebounds, RBA minutes next

• AUD/USD climbs 0.70%
• Australia releases RBA minutes on Tuesday

The Australian dollar has started the week with strong gains. In the North American session, AUD/USD is trading at 0.6339, up 0.70%. The Aussie is coming off an awful week, declining 1.39%.

The US inflation report on Thursday caused a sharp reaction in the markets, which was somewhat surprising. Headline inflation remained unchanged at 3.7%, a shade above the market estimate of 3.6%. Core inflation fell from 4.3% to 4.1%, in line with expectations. Investors reacted as if the battle against inflation had taken a turn for the worse. This sent the US dollar higher against the major currencies, with massive gains against risk currencies. The Aussie was pummelled and plunged 1.56% on Thursday, its worst one-day performance since August. The negative market reaction also raised the odds of a Fed rate hike before the end of the year, from 27% a week ago to as high as 38% after the inflation decision, before easing to 30% at present, according to the CME FedWatch Tool.

The Fed has been preaching a “higher for longer” stance for an extended period, and last week’s inflation report appeared to shake up the markets which have tended to be dovish about the Fed’s rate path and are no longer so confident that the Fed’s tightening cycle is over.

The Reserve Bank of Australia will release its minutes of this month’s meeting on Tuesday. At the meeting earlier this month, the RBA held the benchmark rate at 4.10% for a fourth straight month. There was no surprise here, but new RBA Governor Bullock took pains to remind the markets that a future rate hike is still on the table. Any hints about future rate policy could have an impact on the Australian dollar.

Bullock has stuck with the central bank’s stance that rate decisions will be data-dependent. That could well include Chinese data, as the Asian giant is Australia’s largest trade partner. China’s economy has been struggling and inflation is practically non-existent. On Wednesday, China releases a host of key events, including GDP, retail sales, and industrial production. The numbers could have a significant impact on what the RBA does at its November meeting.

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AUD/USD Technical

• AUD/USD is testing resistance at 0.6343. Above, there is resistance at 0.6399
• 0.6240 and 0.6184 are providing support

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