Aussie Rides the Rate Hike

The Australian dollar enjoyed the rate hike and approached a technical resistance line. A break of this line depends mostly on the upcoming GDP. Update on technicals and fundamentals of this strong currency.

The Reserve Bank of Australia lifted the interest rate for the fourth time since the outbreak of the financial crisis. Australia’s Cash Rate stands at 4%, the highest in the Western world. If we exclude Bernanke’s hike of the discount rate, Australia is the only country to raise the rates. This makes the Aussie a popular carry trade.

This hike came after a break: the RBA raised the rates 3 times in a row and surprised with a break last time. There were doubts towards this move as well, but Glenn Stevens didn’t disappoint this time.

Slow forex reaction

Australian news come out during the Australian morning, which is not the peak of forex trading. Still, the Asian session can be volatile as well. But this time, the reaction was mild. AUD/USD made some gains and then retreated back to 0.8980.

Only many hours after the release, during the busy London session, AUD/USD made a push above 0.90 and peaked at 0.9060. This is a safe distance from the 0.9090 resistance line mentioned in the AUD/USD forecast.

If the Aussie breaks this line, the next line of resistance appears at 0.9170 and it’s rather minor. The big obstacle up the road is 0.9327, which was a huge barrier. Looking down, another greenback storm will find the Aussie supported at 0.8850, followed by 0.8735.

The reason for this mild action is that this decision was anticipated and already priced. It was already prices last month, but Stevens didn’t raise the rates at that time and the Aussie fell.

Upcoming GDP

The Aussie is facing another big publication: GDP for the Q4 of 2009. Also here Australia is unique for not dipping into recession. Australia had only one quarter of economic contraction during the crisis, while other countries had two or more. Two consecutive quarters of contraction define a recession.

The economy grew by only 0.2% in Q3 and this fell below expectations. With the employment situation being excellent, the expectations are now for growth of 0.9% in Q4. This accelerated growth rate should push the Aussie higher.

After this release, AUD/USD will be mostly influenced by the American Non-Farm Payrolls, and the tension towards them. American NFP could send the Euro down and also impact the EUR/AUD cross that is already at a decade’s low.

In recent weeks, the Aussie didn’t enjoy the strength of the economy due to risk aversive trading. With a good GDP, it should continue north.

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