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The AUDUSD is moving higher near familiar support levels, but short-term risks are still skewed to the downside; As the continuity of bears is weakening, it is necessary to redefine its sustainability. The key depends on the strength and intensity of support and unpredictable catalysts.

Fundamentals

Westpac's consumer confidence index showed a positive trend, rising from 79.7 in October to 82.9%. Although the index has risen, the data still paints a gloomy picture, which is related to the decline in per capita expenditure.

One of the more pressing concerns of consumers remains the expected rise in mortgage interest rates. After October, the Reserve Bank of Australia's (RBA) decision-making survey showed that 63% of consumers expected the mortgage interest rate to climb in the coming year. This figure is significantly higher than that of 52.3% in September.

It is worth noting, however, that these figures do not match the high level of concern recorded when the RBA was in aggressive rate hike mode. At that time, these figures were in the 70-80% range. Meanwhile, optimism for a rate cut next year has waned. Only 7% of consumers now hold such expectations, down from 15% last month.

The RBA meeting to be held on November 7th is considered a major event. With the release of the monetary policy statement, a set of revised forecasts will be released.

We believe that although the RBA may need to raise its overall inflation forecast in the near future, it may not be enough in itself to trigger further interest rate hikes, but it needs to balance a series of competing dynamic factors, such as declining job vacancies, signs of pressure on household cash flow, stagnant inflation, wage growth and accelerated growth of housing wealth. When the last bank meeting decided to keep the interest rate at 4.1%, it obviously thought that the former was a stronger reason at present, but it also reserved the possibility of raising interest rates when the data showed that it was necessary. It is expected that the quarterly CPI data released later this month will be an important reference. If the quarterly consumer price index released in September is further out of the market's expectation, then the next few meetings may be more vivid than those in October.

On the market side, compared with some higher frequency indicators, the AUD seems to be oversold. Although we maintain a bullish position on the USD strategically, it is necessary to participate in some contrarian transactions including the AUD tactically. As the Federal Reserve prepares to shift to the loose mode, and Australia's strong terms of trade finally bring some extra belated support, there is still good reason for the AUDUSD to rebound to the 0.6800 range in the near future.

Technical Analysis

On Tuesday, the market continued to rise as the AUDUSD once again avoided falling below the integer threshold of 0.6300.

The Relative Strength Index and the Stochastic Oscillator have deviated from oversold levels, supporting the prospects of higher prices in the near term. Nonetheless, bears have not failed to exit the bearish trend completely and investors should continue to keep an eye on the important resistance zone of 0.6396-0.6450. Among others, the 20-day and 50-day SMAs as well as the two limiting trendlines could reject any potential upside. The bulls need a strong break above the top of the oscillator range above 0.6520 and a break above 0.6570 to reach the 200-day SMA. However, the good sign in all this is that it cannot fall below new lows again, otherwise, the bullish trend will be invalidated.

If the downtrend extends below the integer threshold of 0.6300 and the key support line, the price will return to the previous slower downtrend pattern and look for protection around the 0.6200 range after breaking below such an integer threshold.

Overall, the AUDUSD reactivated its bearish trajectory from mid-July earlier last week and a sustained rally above 0.6520 is now needed to remove the negative risk from the market. It is recommended to focus on the strength and durability of the rally around 0.6300 to explore whether the sustainability of the bears remains.

Trading Recommendations

Trading direction: Long

Entry price: 0.6330

Target price: 0.6800

Stop loss: 0.6240

Deadline: 2023-10-20 23:55:00

Support: 0.6376, 0.6357, 0.6313

Resistance: 0.6433, 0.6489, 0.6520