AUD/USD Breaks Through Key Resistance as RBA Hawkish Stance Counters Weak Australian Growth

The Australian Dollar has staged a remarkable recovery this week, surging to fresh three-week highs against the US Dollar despite disappointing domestic economic data. The reversal highlights how shifts in monetary policy expectations are currently overwhelming traditional data-driven trading patterns in FX markets.

Why the Aussie Shrugged Off Poor GDP Numbers

On Wednesday, Australia’s Bureau of Statistics confirmed that Q3 economic growth crawled to just 0.4% quarter-over-quarter, falling short of the 0.7% consensus forecast and down from 0.6% in the previous quarter. On an annual basis, GDP growth stood at 2.1%, a modest improvement from 1.8% but still failing to inspire fresh optimism about Australia’s economic trajectory.

Under normal circumstances, this data would have hammered the AUD into deeper losses. Instead, traders largely dismissed the weak print. The reason? Reserve Bank of Australia Governor Michele Bullock’s hawkish commentary delivered the same day shifted the narrative entirely. Speaking before parliament, Bullock emphasized the central bank’s concern about persistent inflation pressures, signaling that rate cuts may not be as forthright as previously assumed.

This messaging mattered because Australia’s inflation remains sticky above the RBA’s 2-3% target band. The October headline CPI accelerated to 3.8% year-over-year from 3.5% the previous month, while Trimmed Mean CPI—the RBA’s preferred core measure—held firm at 3.3%, up from 3.2% in September. These readings suggest that the central bank has limited room to ease policy aggressively, supporting the Aussie’s defensive tone.

The Dollar’s Dovish Problem

Meanwhile, the US Dollar has become its own worst enemy. Financial markets are now pricing in a 90% probability of a 25-basis-point rate cut from the Federal Reserve on December 10, according to CME FedWatch data. This dovish shift reflects broader expectations that the US economy may be cooling faster than initially anticipated, reducing the yield advantage that has traditionally supported the Greenback.

Speculation around the Fed’s next Chair appointment has further complicated matters, with market participants pricing in a more dovish candidate. The combination of near-term rate cut bets and longer-term policy uncertainty has pushed the US Dollar to its weakest levels since mid-November, creating a straightforward tailwind for risk currencies like the Australian Dollar.

Adding to this supportive backdrop, equity markets have maintained their positive tone, buoyed by hopes for a Russia-Ukraine peace agreement and lower US interest rates on the horizon. This risk-on sentiment naturally benefits the growth-sensitive AUD while punishing the safe-haven USD.

Technical Setup: Bullish Structure Intact, But Resistance Looms

From a technical perspective, AUD/USD has established a compelling bullish structure. The pair has broken decisively through a descending trend-line that extended from September’s swing high and has established a foothold above its 100-day Simple Moving Average. Daily oscillators are gaining positive momentum while remaining comfortably below overbought territory—a textbook setup for continued upside.

The near-term target sits at the 0.6535-0.6530 confluence zone, where multiple technical layers converge. A break above this resistance could unlock movement toward the psychological 0.6600 level. Beyond that, the 0.6660-0.6665 region represents the next structural hurdle, with the year-to-date high near 0.6700 (touched in September) providing an ultimate magnet for bullish traders.

On the downside, any pullback should find initial support at the 0.6500 psychological mark. A breach below this level would threaten the 200-day SMA near 0.6465, potentially opening the door toward the multi-month low around 0.6420 tested in November. Breaking decisively below 0.6400 would signal a genuine trend reversal and give fresh ammunition to bear traders.

What’s Next: Data Dependency and the Path Forward

The remainder of this week presents critical scheduled events. The US ADP employment report and ISM Services PMI will provide fresh momentum cues, but the real showstopper arrives Friday with the US Personal Consumption Expenditure Price Index—the Fed’s preferred inflation measure. Any PCE surprise will have immediate implications for December rate-cut odds and will likely dictate the next directional move for AUD/USD around current exchange rates.

For now, the fundamental backdrop remains tilted in favor of AUD bulls. The RBA’s hawkish inflation narrative, combined with the Fed’s dovish tilt and general risk-on sentiment, creates a favorable environment for further AUD/USD appreciation toward the 0.6535 confluence and potentially beyond.