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Australian Dollar Forecast: Lockdowns Drag Aussie Dollar as Chinese FDI Approaches

Australian Dollar Forecast: Lockdowns Drag Aussie Dollar as Chinese FDI Approaches

Thomas Westwater, Analyst

Australian Dollar, AUD/USD, Covid, NZ Business PMI, Chinese FDI - Talking Points

  • Australian Dollar falls versus US Dollar as Canberra enters snap lockdown
  • China’s foreign direct investment (FDI) may cross the wires this Friday
  • AUD/USD looks to extend its post-wedge breakdown as downside picks up

Friday’s Asia-Pacific Outlook

The Australian Dollar is dropping against most of its major peers into Friday’s Asia-Pacific trading session. Investors started to hit the sell button on the Aussie Dollar on Thursday after Australia’s capital city, Canberra, started a snap lockdown. Weakness accelerated overnight as US traders digested the news. The new lockdown will affect nearly 400,000 people. That adds to recent lockdown woes, with Sydney going into the seventh week of restrictions.

Elsewhere, Wall Street traded higher after weekly initially jobless claims dropped to 375k from 387k for the week ending August 7. The Dow Jones Industrial Average (DJIA) rose to a fresh record high despite only gaining 0.04% on the day. Better-than-expected earnings have also helped push equities higher in recent weeks. The Walt Disney Co. reported a strong quarter on its top and bottom lines after Thursday’s closing bell.

This morning, New Zealand saw BusinessNZ release its July performance of manufacturing index (PMI)at 62.6, up from June’s 60.7 reading. New Zealand doubled down on its zero-Covid policy this week. Prime Minister Jacinda Ardern said, “We're simply not in a position to fully reopen just yet.” That said, the island nation’s strict border controls are likely to stay in place until next year. While that will likely hurt commerce and no doubt tourism, it will also allow New Zealand to more readily control the spread of any outbreaks, which could bode well for its domestic economy.

China is set to release data on foreign direct investment (FDI) for July, which could come as soon as today, although the data release may be delayed through August 18, according to Bloomberg. Foreign investment inflows to China have slowed through the prior three months, with June’s year-over-year change dropping to 28.7%. Still, in absolute terms, China’s FDI remains much higher this year than any on record as the economic powerhouse continues to make policy changes to attract foreign investment. Given Australia’s trade relationship with China, the Australian Dollar may be some underlying strength if FDI gains steam in July.

AUD/USD Technical Outlook:

The Australian Dollar has extended a move lower after failing to break back above a prior level of support formed from a Rising Wedge pattern. MACD is also taking a turn lower, crossing below its signal line, a bearish sign. That may see AUD/USD continue to fall, perhaps to the 0.7286 level where the wedge pattern stemmed from.

AUD/USD Daily Chart

audusd wedge, Thomas Westwater

Chart created with TradingView

Australian Dollar 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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