Australian Dollar pushes higher on hawkish RBA signals, upbeat Chinese growth

• The Australian Dollar gains 0.51% on Monday, approaching the psychological 0.7000 level.
• Hawkish comments from an Australian central bank official reinforce expectations of a restrictive monetary policy.
• China's stronger-than-expected economic growth provides additional support to the Australian currency.

AUD/USD extends its gains on Monday, trading around 0.6980, up 0.51% on the day at the time of writing. The Australian Dollar (AUD) benefits from hawkish comments by a Reserve Bank of Australia (RBA) official and stronger-than-expected economic growth in China, Australia's largest trading partner.

RBA Assistant Governor Christopher Kent indicated that there are reasonable signs that neutral interest rates are rising both in Australia and globally. These remarks suggest that monetary policy may need to remain restrictive for longer than previously anticipated, providing support to the Australian Dollar.

The neutral interest rate refers to the level at which monetary policy neither stimulates nor restricts economic activity. An increase in this rate could imply that the RBA has less room to ease monetary policy without reigniting inflationary pressures.

Meanwhile, encouraging economic data from China reinforce the positive sentiment surrounding the Aussie. China's Gross Domestic Product (GDP) expanded by 4.5% YoY in the third quarter, exceeding market expectations and accelerating from the previous quarter's 4.3% growth.

The stronger-than-expected figures suggest that the world's second-largest economy is maintaining its growth momentum despite persistent economic challenges. This development is particularly supportive of the Australian Dollar, given Australia's close trade relationship with China and its dependence on Chinese demand for commodities, notably Iron Ore.

The combination of resilient Chinese economic activity and a relatively hawkish RBA outlook provides a favorable backdrop for the Australian currency. Stronger Chinese demand could support Australian exports, while expectations of a prolonged restrictive monetary policy could help maintain the attractiveness of Australian assets to international investors.

However, the outlook for AUD/USD also depends on developments surrounding the US Dollar (USD). The relative monetary policy trajectories of the RBA and the Federal Reserve (Fed) remain an important factor for the currency pair, with any shift in US interest rate expectations potentially influencing the Australian Dollar's upward momentum.

Investors will therefore continue to monitor upcoming economic indicators and central bank communications to assess whether the current favorable conditions can sustain the Australian Dollar's recovery.

Aussie Dollar holds firm near range highs despite valuation concerns

Strategists at Brown Brothers Harriman note that the Aussie remains resilient, with “AUD is outperforming, with AUD/USD trading near the top of its three-week 0.6900-0.7000 range.” They highlight recent comments from RBA Assistant Governor Christopher Kent, who observed that the “Aussie dollar at the moment is marginally above the long-run equilibrium estimates for the real trade-weighted index,” while the IMF “estimates AUD overvaluation at 17% on a real effective exchange rate basis.” Even so, BBH argues that “AUD/USD is generally in line with real and nominal 2-year Australia-US interest rate differentials, suggesting its lofty valuation poses little immediate downside risk.”

AUD/USD technical analysis

In the one-hour chart, AUD/USD trades at 0.6983, holding a constructive near-term bullish bias as it advances above both the 100-period simple moving average (SMA) at 0.6961 and the 200-period SMA at 0.6964. The pair is pressing into the upper end of the recent range, while the Relative Strength Index (14) near 59 stays below overbought territory and suggests steady, but not extreme, upside momentum.

On the topside, immediate resistance is located at the horizontal barrier around 0.6995, followed by a higher cap at 0.7014 if buyers extend the move. On the downside, initial support is seen at the 200-period SMA at 0.6964, then the 100-period SMA at 0.6961, with further protection at the horizontal levels of 0.6950 and 0.6932, where a deeper pullback would be expected to attract dip-buying interest.

(The technical analysis of this story was written with the help of an AI tool. Know more.)