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Australian Dollar Outlook: AUD/USD Breaks 20-Day SMA, Chinese FDI in Focus

Australian Dollar Outlook: AUD/USD Breaks 20-Day SMA, Chinese FDI in Focus

Thomas Westwater, Analyst

AUD/USD, Covid-19, Economic Data – Talking Points

  • US equity futures climb on thin holiday trading volume, earnings in focus
  • AUD/USD broke under its 20-day SMA despite upbeat Chinese GDP
  • Upcoming Chinese FDI data may ease recent AUD/USD weakness

U.S. stock futures climbed higher on Monday. The small-cap Russell 2000 E-mini contract outpaced its US peers. Trading volume was light, however, with the equity and bond markets closed in the United States for the Martin Luther King Jr. Day holiday. The week ahead will provide a gamut of earnings from US-listed companies, along with high-impact economic releases.

Tuesday's Wall Street session will see Bank of America and Netflix report quarterly results. Both reports command heavy attention from investors with the potential to set broader market sentiment. Overall net capital flows and foreign bond investment data out of the United States will also cross the wires, according to the DailyFX Economic Calendar.

Russell 2000, Dow Jones, AUD/USD 30-Min Chart

AUDUSD vs DJI, RTY futures chart

Chart created with TradingView

Tuesday's Asia-Pacific Outlook

The Asia Pacific trading session appears set for a mixed day of trading after Monday’s outing, when China reported a better-than-expected Q4 GDP figure at 6.5% YoY. China is now the only major economy to see positive economic growth in 2020, which seemingly accelerates its path to overtake the US as the world’s number-one economy. The Chinese Shanghai Composite stock index rose 0.84% on Monday and Hong Kong’s Hang Seng Index (HSI) gained 1.01%.

The risk-sensitive Australian Dollar, which typically benefits from upbeat Chinese economic data, fell against its US counterpart. The breakdown in Sino-Australian relations is perhaps the best explanation for the Aussie's lackluster reaction. AUD/USD is nearly 2% lower from its multi-year high set earlier this month, with recent US Dollar strength weighing heavily on the cross.

Nevertheless, AUD traders will be watching foreign direct investment data out of China, due to cross the wires Tuesday afternoon. December’s FDI data is expected to complete a record-breaking year for foreign investment into China despite a global pandemic that is thought to have originated from the country. Hong Kong unemployment data may also attract market attention in Tuesday’s session.

AUD/USD Technical Outlook:

AUD/USD may be at risk of a further pullback after breaching below its 20-day Simple Moving Average for the first time since October 2020. The MACD oscillator is trending lower, while the Relative Strength Index remains in neutral territory. The trendline from December 2019 may turn into support after previously serving as resistance last month.

Below the trendline sits the 23.6% Fibonacci retracement, a likely target for bears beyond the trendline. Moving above the 20-day SMA will be required for bulls to re-establish the broader trend higher, but the broader rally remains intact at current prices, regardless.

AUD/USD Daily Chart

AUD/USD Chart

Chart created with TradingView

AUD/USD TRADING RESOURCES

--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter

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

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