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Summary

  • AUD bolstered by RBA outlook.
  • Economists warn of potential overheating.
  • Is the country too dependent on exports?

Since the low of 0.8659 seen towards the end of January this year, the Australian dollar has been a relatively consistent play on its assent back onto the handles in the 0.90s, topping at 0.9461 and bolstered in part by optimism in the RBA's outlook for the Australian economy.

Indeed, there have been upbeat signs in the economy this year, even outside of the mining sector being the major contributor to Australia's growth, although economists are indeed continuing to warn on the implications of an environment that has high inflation, high growth, low rates, and this could be equating to an economy that is overheating. Firstly, although there are efforts in the government's strategy to encourage growth in other areas for a sustainable growth pact, and indeed this was evident in the RBA's minutes containing a slightly more positive assessment of some sectors, largely around improved global data and domestic labor demand and consumption trends, concerns still remain over the reliance on the mining sector.

This export industry and its product that has been shipped overseas has been generating a lot of income for the country, and now the question is whether there can be an uptick elsewhere.

AUD/USD tested 0.93 on GDP

On this note, it was encouraging in the surprise acceleration of Australia's economic growth seen in its GDP numbers yesterday. Official figures released a 1.1% increase in the first three months of this year. The results makes an annual growth rate of 3.5%, and that's the strongest pace in two years, nicely above the long-term average. Nevertheless, after a brief spike in the AUS/USD up to test the 0.93 handle on the news, traders took profits there given the data is of course related to the first three months of this year and not forgetting that we have actually needed to read some fairly lackluster building approval figures of late, with a fairly high unemployment rate and some mixed signs elsewhere in the economy.

So really, it will be interesting now to see what happens in the next reading that was taking us into the current period and leading up to and immediately following the budget, which if we recall had an impact on confidence. This will of course flow into those next economic growth figures. Some economists are indeed divided here, that this economic strength is likely to fade, in no small part due to the effect of the budget, or the public perceptions of it, and on consumer spending.

So, the question now is how will the RBA interpret the figures in the months ahead?

Meanwhile, in the nearer-term outlook for the AUD, whilst many will argue that this Q1 GDP is backwards looking, it is still a decent number and puts AUD/USD back in a range ahead of NFPs. Offers are coming in 0.9290/0.9300 and perhaps stops might be placed through 0.9330? Then a long play at 0.9210/20 might be accompanied with a stop through the 200 DMA (0.9182). So those could be attractive looking plays in this current range this week.

Valeria Bednarik, chief analyst at FXStreet explained that the AUD is trading right above the 0.9270 Fibonacci level here, and the AUD/USD presents a short-term bullish tone according to the hourly chart, with higher lows and technical readings in positive territory, amid lacking clear strength at the time being. "In the 4 hours chart however technical readings maintain the neutral tone seen on previous updates, with the key levels to watch at 0.9200 to the downside, and 0.9345 to the upside." She ended on this and explained that as long as among them, the upcoming direction in the pair will remain undefined.

Source: AUD Boosted By RBA Optimism, But For How Long?