Asia stocks subdued; Nikkei slips amid BOJ hike bets, RBI cuts rates
A bullish engulfing candle and wedge breakout point to upside potential, yet traders face a gauntlet of risk events on both sides of the Pacific.
- AUD/USD breaks out of multi-month falling wedge
- Bullish engulfing candle adds conviction to upside bias
- GDP, household spending and RBA commentary in focus
- U.S. ADP, ISM services and Fed Chair speculation loom large
Summary
AUD/USD has staged a decisive bullish breakout, supported by hawkish shifts in Australia’s rate outlook and strong risk appetite. Technical signals reinforce the upside bias, but the next 48 hours bring heavy event risk: Australia’s GDP and household spending data, RBA commentary, and key U.S. releases including ADP employment and ISM services. Add speculation over the next Fed Chair, and the stage is set for volatility. Traders should watch whether the breakout holds as fundamentals take centre stage.
Rate Recalibration, Risk Appetite Fuel Breakout
To begin with, the following graphic looks at the correlation AUD/USD has seen with traditional drivers over the past week (middle pane) and month (right-hand pane), such as the offshore Chinese yuan, rate differentials between Australia and the U.S., along with Nasdaq 100 and copper futures—the latter two used as proxies for risk and cyclical appetite.
Source: TradingView
What’s clear over both timeframes is that risk appetite has been a key influence on the Aussie’s recent outperformance, sitting with correlation coefficients with Nasdaq futures of 0.93 and 0.75 respectively. There has also been a reasonable relationship with cyclical assets such as copper, while short-dated rate differentials have also seen a strong positive correlation over the past week.
The broader read-through is that if you’re trading AUD/USD, keep a close eye on the performance of riskier asset classes and incoming economic data that could influence the outlook for interest rates in both Australia and the U.S.
Major Event Risk Looms Large
Looking at the economic calendar, there’s ample event risk on both sides of the Pacific to end the week, headlined by Q3 GDP and household spending data in Australia and ADP employment, ISM services, and belatedly released incomes, consumption and core inflation figures in the States.
Source: TradingView
In Australia, the key information in the GDP report is not the headline growth rate. Instead, detail on household consumption, household savings, and unit labour costs (productivity) is far more important for the RBA, providing insights into what influence the largest and most important part of the economy is having on the growth and inflation outlook. For the same reasons, the household spending data released 24 hours later will also be crucial.
It’s not on the calendar, but RBA Governor Michele Bullock will appear before the Senate Economics Legislation Committee from 9am AEDT on Wednesday. While that’s before the national accounts are released, keep a lookout for comments made after the GDP details have been made public for hints on possible policy implications.
Source: Bloomberg
Before the Aussie data deluge, swaps traders have all but abandoned expectations for further rate cuts from the RBA, attaching almost zero risk of further easing before the risk of rate hikes begins to emerge from the middle of 2026. With inflation currently accelerating away from the RBA target, further strength in activity data—without evidence of a meaningful pickup in productivity—will likely see the timing and scale of rate hikes brought forward. Weakness in the data would likely see the opposite reaction, of course.
In the States, Wednesday’s ADP national employment report and ISM services PMI—both for November—loom as the key events in the absence of top-tier and timely official data, which will begin to arrive in December.
Also, keep an eye out for any official statements on who will replace Jerome Powell as Fed Chair next year. Donald Trump has been on the wires earlier today, saying the field of candidates is down to one! That announcement, when the teasing finally concludes as to who it is, will have a meaningful impact on the U.S. interest rate outlook, and hence the U.S. dollar too.
AUD/USD Bulls Eye September Highs
Ahead of those risk events, AUD/USD has broken out of the falling wedge it has been coiling in for several months, benefitting from the hawkish recalibration of Australia’s interest rate outlook and buoyant risk appetite. Tuesday’s move—which also delivered a bullish engulfing candle on the daily timeframe—points to a potential return to the highs seen earlier this year, should convention provide an accurate steer for traders.
Source: TradingView
The momentum picture is also shifting bullish, with RSI (14) now trending higher above the neutral 50 level, indicating building upside pressure. MACD has already staged a bullish crossover and has moved into positive territory, confirming the bullish message that now favours long setups over shorts.
For those considering bullish setups, longs could be established above former wedge resistance with a stop beneath .6540 for protection, the latter level acting as both resistance and support prior to the bullish breakout. As for levels of note above, the November high of .6580 is first at bat, with a more pronounced resistance located at .6625 where the pair was repeatedly capped earlier this year.
If that level were to be cleared, only minor resistance at .6660 stands in the way of a potential return to the highs above .6700 set in September.
Should the bullish breakout prove to be a false, downside levels to watch include former wedge resistance, the 50DMA and .6520 support.