AUD/USD Trades Higher Than Expected, Will Test 50-Day SMA

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The AUD/USD trades above the September low, coming from the recent stronger-than-expected local CPI reading. 

If the trade value clears the October opening range, the exchange rate may attempt to test the 50-day SMA.

On October 27, the AUD/USD traded high (0.6511), approaching the monthly high (0.6547) after the CPI was hotter than forecast. Strategist Daniel McCarthy notes that AUD strength was brought about by a weaker USD and the higher-than-expected CPI.

“The US Dollar has seen some weakness due to the market looking for an end to the ever-hawkish Federal Reserve. Treasury yields dipped after the Bank of Canada (BoC) raised their overnight lending rate by 50 basis points (bps), less than the 75 bp forecast. Earlier in the month, the RBA had also taken a dovish tilt when they raised the cash rate by 25 bps instead of the 50 bps anticipated,” McCarthy states in his report.

These factors allowed for better trading value and opened the possibility of testing the 50-day SMA. Testing the 50-day will give traders a better view of the trend.

David Song, another strategist notes, “AUD/USD may attempt to break out of the opening range for October as it approaches the monthly high (0.6547), with a break/close above the Fibonacci overlap around 0.6460 (61.8% retracement) to 0.6530 (61.8% expansion) raising the scope for a test of the 50-Day SMA (0.6593).”

Song also reports that a move above the moving average may push the AUD/USD to 50% expansion, but the caveat is that the exchange rate may see a negative slope in the moving average if it fails to break out of the opening range.

Song also predicts that the AUD/USD may face headwinds as Governor Philip Lowe is expected to announce another 25bp rate increase during his November 1 RBA meeting. Assuming the trading rate breaks above the monthly opening, Song notes that it may help alleviate the tilt in retail sentiment seen earlier this year.

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