18.01.202314:33 Forex Analysis & Reviews: Aussie takes the lead

China is opening up. The Chinese economy has grown more than expected. The country has passed the peak of the pandemic and is ready to return to the previous GDP growth rates. China has become the main topic in the financial markets at the beginning of 2023. Investors have forgotten about the slowdown in the Fed's monetary restriction, and about the energy crisis in Europe, and about the armed conflict in Ukraine. They are only interested in China. And if so, then it is not necessary to be surprised by the rise of AUDUSD. The Australian dollar is becoming the main favorite on Forex.

The Aussie's success at the start of the new year is the result of a combination of two factors: a strong economy, which allows us to look forward to a continuation of the RBA monetary tightening cycle, and tailwinds from abroad, blowing primarily from Asia. Let's remember the second half of 2020, when almost the entire civilized world was in lockdown, and the factor of Chinese exceptionalism called AUDUSD up. History repeats itself, so the rally of the analyzed pair in similar conditions looks natural.

Indeed, with Goldman Sachs raising China's GDP outlook and Vice-Premier Liu He at the Davos Economic Forum claiming that his country will soon return to its previous pace of growth, proxies like the Australian and New Zealand dollars are bound to thrive. Which they do, firmly taking first and second place in the race of the best performers among the G10 currencies.

Aussie's leadership is supported by strong macro statistics. In November, consumer prices in Australia jumped from 6.9% to 7.4%, while retail sales rose by 1.4%, more than double the forecast of Bloomberg experts. Consumer sentiment in January was marked by the largest increase since April 2021, and if December labor market statistics also please, the Reserve Bank will have no choice but to accelerate the cycle of tightening monetary policy.

Australian retail sales dynamics and RBA rates

The derivatives market gives an 80% chance of a 20 bps increase in the cash rate to 3.3% in February. The rate ceiling is estimated by investors at 3.9%, Bloomberg experts at 3.6%. Nevertheless, the RBA has repeatedly said, at its previous meetings, that it can speed up the monetary restriction. Everything will depend on the data. And they have been pleasing lately.

If this happens, the divergence in monetary policy will play into the hands of the bulls in AUDUSD. Indeed, the Fed intends to return to the standard step of 25 bps in February, which weakens the position of the U.S. dollar.

Dynamics of the main rates in the USA and Australia

Thus, the flow of internal and external positives contributes to the development of the Aussie rally. It may accelerate in the event of the publication of strong statistics on the Australian labor market.

Technically, there is a steady upward trend on the AUDUSD daily chart. The AB=CD pattern is relevant, the target of which corresponds to 0.731 by 261.8%. Traders should prioritize buying the pair.