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Australian Dollar, ASX 200 Divergence a Positive Sign for Markets?

Australian Dollar, ASX 200 Divergence a Positive Sign for Markets?

Ilya Spivak, Head Strategist, APAC

AUSTRALIAN DOLLAR, ASX 200 – Talking Points:

  • Australian Dollar, ASX 200 have diverged amid improving market sentiment
  • Price moves may mark confidence in lower US-China trade war, Brexit risks
  • Technical positioning seems to support the case for more of the same ahead

Where will markets end 2019? See our Q4 forecasts for currencies, commodities and stock indexes!

The Australian Dollar and its home country’s benchmark ASX 200 stock index are diverging.

The two initially moved in tandem as markets turned more optimistic at the end of the third quarter, reflecting hopes for US-China trade war de-escalation and easing worries about a no-deal Brexit. That this buoyed Australian shares alongside other risk-geared assets seems straight-forward. The boost to AUD/USD seems to have come less from the Aussie’s own appeal than ebbing haven demand for the Greenback.

The narrative seems to have changed at the beginning of November. The ASX 200 has continued marching higher alongside ebbing 2020 Fed rate cut expectations, speaking to further improvement in investors’ assessment of the macro backdrop. Meanwhile, AUD/USD has turned downward. This might reinforce the constructive narrative, implying USD’s yield advantage has become attractive anew in calmer waters.

Chart of the Australian Dollar and ASX 200 stock index diverging

Chart created with TradingView

Looking ahead, more of the same seems likely. The Aussie Dollar has bounced to retest support-turned-resistance in the 0.6797-0.6817 area but the outlines of broader downtrend resumption remain intact, suggesting the way forward probably tilts in favor of a test at the 0.6671-90 floor in place since early August. Neutralizing near-term selling pressure likely requires a close above October’s high at 0.6930.

Australian Dollar vs US Dollar price chart - daily

Daily AUD/USD chart created with TradingView

Meanwhile, the ASX 200 has broken above two-month resistance in the 0.6766.20-75.60 zone. A subsequent pullback has conspicuously fallen short of securing a foothold below this barrier, at least for now. Negative RSI divergence hints at cooling momentum, but a reversal is far from confirmed absent a close below 0.67. It may yet speak to little more than digestion before a rise to July’s high at 0.6875.50.

ASX 200 price chart and technical analysis

Daily ASX 200 chart created with TradingView

AUD/USD, ASX 200 TRADING RESOURCES

--- Written by Ilya Spivak, Currency Strategist for DailyFX.com

To contact Ilya, use the comments section below or @IlyaSpivakon Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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