Australian Dollar falls back to 200-DMA after US GDP beat

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• The Australian Dollar falls following the release of US GDP data for the second quarter which showed a higher-than-forecast rate of growth. 
• The Aussie gave back gains from its rebound after the Fed meeting when Powell’s comments had led to a dovish market interpretation.
• The Fed Chairman said he could not confirm if there would be further rate hikes, noted a fall in Core CPI and strength in the labor market. 
• Thursday’s data also showed a jump in Durable Goods Orders and a fall in intial and continuing jobless claims.  

The Australian Dollar (AUD) declines against the US Dollar (USD) on Thursday, after the release of better-than-expected US GDP data for the second quarter reveals the US economy grew at a faster 2.4% clip than either expectations – at 1.8% – had predicted or was the case in the previous quarter (2.0%). Along with an unexpected jump in Durable Goods Orders of 4.7%, stronger-than-forecast labor market data, and lower-than-forecast GDP price index, the data suggests the economy is improving. 

The data follows on from faintly optimistic comments from the Federal Reserve (Fed) Chairman Jerome Powell in the press conference at the FOMC on Wednesday, which weighed on the USD. 

The Fed Chair refused to commit to confirming rate hikes in the future, and noted how core inflation had come down whilst the labor market remained resilient. Even though he continued to reiterate that more work needed to be done to get inflation back to target, the market interpreted his overall tone as leaning on the dovish, i.e. suggesting interest rates might fall sooner than previously thought. This weighed on USD, helping AUD/USD rise. 

AUD/USD trades in the upper 0.67s during the US session on Thursday.  

Australian Dollar news and market movers 

• The Australian Dollar weakens versus the US Dollar on Thursday after US GDP data shows stronger-than-expected growth. 
• US Gross Domestic Product (GDP) expanded at an annualized rate of 2.4% in the second quarter, the US Bureau of Economic Analysis’ (BEA) first estimate showed on Thursday. This reading followed the 2% growth recorded in the first quarter and surpassed the market expectation of 1.8% by a wide margin.
• The GDP Price Index in the second quarter declined to 2.6% from 4.1% in the first quarter, while the Core Personal Consumption Expenditures dropped to 3.8% from 4.9% in the same period.
• Durable Goods Orders jumped 4.7% on a monthly basis to reach $302.5bn, according to the US Department of Commerce, in seasonally adjusted terms. 
• Initial Jobless Claims decreased by 7,000 to 221,000 in the week ending July 22 – below the 235,000 gain forecast. Continuing Claims fell to 1.69 million versus the 175M forecast.
• The Australian Dollar rebounded following the Fed meeting. The FOMC raised rates by 0.25% – as expected. However, Chairman Powell showed more-than-expected optimism in his post-meeting press conference.
• Powell noted how core inflation was coming down, how the labor market was showing remarkable resilience, and how the Fed would be taking a meeting-by-meeting approach to policy from now on. The market interpreted this as a dovish turn. 
• The release of Australian Consumer Price Index (CPI) data for Q2 dragged the Aussie lower early Wednesday after it showed a steeper-than-expected slowdown in inflation. 
• Australian CPI inflation came out at 6.0% in Q2 YoY when 6.2% had been forecast versus the 7.0% in Q1. 
• The Reserve Bank of Australia’s (RBA) preferred gauge, RBA Trimmed Mean CPI, measured quarterly, increased by 5.8% YoY in Q2 versus the 6.0% rise estimated and the 6.6% of Q1.
• There is a risk that the RBA will have to cut rates in 2024 because the Australian housing market is dominated by variable-rate mortgages so it is more sensitive to interest rates, and homeowners have recently been adversely affected by higher mortgage repayments, according to Bloomberg Intelligence, as quoted by Financial Review. 
• The RBA’s Cash Rate is 4.1%, which is below the Fed’s 5.50%, overall favoring capital flows to the Greenback versus the Aussie. 
• China’s pledge to increase support for the economy on Monday has helped the Australian Dollar since it is Australia’s largest trading partner. 

Australian Dollar technical analysis 

AUD/USD is in a sideways trend on both the long and medium-term charts. The February high at 0.7158 is a key hurdle, which if vaulted, will alter the outlook to one that is more bullish longer term. 

Likewise, the 0.6458 low established in June is a key level for bears, which if breached decisively, would give the chart a more bearish overtone from a longer-term perspective. 

Australian Dollar vs US Dollar: Weekly Chart

A confluence of support made up of all the major daily simple moving averages (50, 100 and 200) exists in the upper 0.66s and lower 0.67s. This is expected to provide a rigid cordon of support, acting as a barrier to further losses.

The exchange rate has already bounced off the 200-day Simple Moving Average (SMA) at 0.6725 and completed a pivot higher. However, it is not clear if this reversal will extend.  

Australian Dollar vs US Dollar: Daily Chart

A decisive break above the June 16 high at 0.6900 would provide stronger confirmation of a more bullish outlook. 

Likewise, a decisive break below the 200 first and then the 50 and 100-day Simple Moving Averages (SMA) would confirm a continuation of the recent bear move lower to a speculative target at the June and July lows in the mid-0.64s. 

A decisive break consists of a long daily candlestick, which pierces cleanly above or below the critical level in question and then closes near to the high or low of the day. It can also mean three up or down days in a row that break cleanly above or below the level, with the final day closing near its high or low and a decent distance away from the level.