The Australian dollar was trying to recover from the recent sell-off. It was trading half a percent stronger on Wednesday, supported by the latest Australian GDP data and broad USD weakness.
Earlier today, Australian GDP surprised positively, printing 3.9% year-on-year in the third quarter, down from 9.5% previously, but above 3% expected . The quarterly change dropped from 0.7% to a contraction of 1.9%, still better than the -2.7% forecast.
During the US session, the Markit US Manufacturing disappointed market participants, tumbling from 59.1 to 58.3 final for November, which is below October’s final 58.4 – the weakest print since Dec 2020.
At the same time, the ISM US Manufacturing also disappointed, though only marginally, printing 61.1 versus 61.2 expected, but up from October’s 60.8.
Fed getting more hawkish
More importantly, Jerome Powell testified before the Senate, saying that the “transitory view on inflation” is no longer valid and inflation will likely stay elevated . Who could have seen that coming?
Additionally, he said that the Fed might speed up the current pace of tapering to end it sooner than the plan to finish QE by July 2022 . The greenback advanced after his remarks; however, considering the overbought sentiment, the rally faded quickly.
economists at Credit Suisse turned bearish on the Aussie and now target 0.7000 in AUD/USD.
Aussie testing major support
The Australian dollar has been undermined recently by the dovish RBA stance as the central bank reiterated that there would not be any rate hikes next year. Additionally, most industrial commodities have peaked – including iron ore, which is down 50% from its summer highs, copper, gold, silver, oil, etc. Therefore, downward trends in commodity prices usually lead to a decline in the Australian dollar as well.
Technically speaking, the Aussie has managed to defend August lows at 0.71, and it looks like a slight bounce could occur from that level, considering the oversold conditions. As long as the support at 0.71 is intact, the short-term trend could be bullish.
However, the pair has dropped below the ascending trend line, ending the medium-term bull market. The target for the current bounce could be at September lows of 0.7170, and if the Aussie breaks above it, it might continue toward the mentioned trend line at 0.73, where previous lows and highs are also converged.