Australian dollar takes a breather after wild week

• Markets see 60% chance of RBA rate hike in H1 of 2024
• US Treasury yields fall to 4.35%

The Australian dollar has bounced back on Friday after losses a day earlier. In the European session, AUD/USD is trading at 0.6487, up 0.24%.

It has been a wild week for the Australian dollar, which soared 2% on Tuesday, courtesy of a softer-than-expected US inflation print. The Aussie climbed as high as 0.6525 on Wednesday, its highest level since August 10^th and has climbed 1.9% this week.

Is the RBA done with tightening?

The Reserve Bank of Australia has been aggressive with its rate hikes, bringing the cash rate to 4.35%. The RBA hiked by a quarter-point earlier this month but is widely expected to pause at the December meeting. Thursday’s employment report was much stronger than expected, with a gain of 55,000 jobs compared to the market consensus of 20,000. The release didn’t have much effect on the RBA rate odds, as the lion’s share of the increase in jobs were part-time positions.

As for 2024, investors aren’t sure what to expect from the RBA after December. The markets have priced in about a 60% chance of a quarter-point hike in the first half of 2024, and key releases such as inflation and employment will play major factors in the RBA’s upcoming rate decisions. Goldman Sachs is more dovish, as it projection that inflation to fall below 3% in late 2024 and isn’t expecting any further rate hikes.

In the US, there were further signs this week that the economy is slowly cooling. Inflation was lower than expected at 3.2% and retail sales surprised to the downside with a 0.1% decline. As well, unemployment claims hit a three-month high at 231,000. US Treasury yields fell on Thursday to 4.45%, down from 4.53%, as speculation continues to rise that the Fed has ended or is very close to ending the current rate-tightening cycle.

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AUD/USD Technical

• AUD/USD is testing resistance at 0.6476. Above, there is resistance at 0.6526
• 0.6408 and 0.6351 are providing support

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