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US Dollar Holds High Ground. China Cracks Down as Risk Assets Eye Fed. Does AUD/USD Continue Lower?

US Dollar Holds High Ground. China Cracks Down as Risk Assets Eye Fed. Does AUD/USD Continue Lower?

Daniel McCarthy,

AUD/USD, Hang Seng, CSI 300, US Dollar, Fed, Delta Variant, RBNZ - Talking Points

  • Chinese stocks hit as the crackdown begins to broaden, where to next?
  • US Dollar strength against commodities and associated currencies continues
  • Risk assets on the back foot ahead of a hawkish Fed at Jackson Hole next week

The Hang Seng and mainland China equity indices moved deep into the red on Friday as the local regulator continues to crack down on sectors beyond tech. The scope of tighter regulations appears to be growing, adding to risk-off sentiment across markets. Delta variant impact adds to the downbeat mood, with commodities and linked currencies under pressure as the US Dollar continues to strengthen. Lockdown extensions and port closures across the region are causing concern.

AUD, CAD and NZD all made new lows for the year this week. NZD found some support today after RBNZ Governor Orr said New Zealand cash rates need to get back to neutral at 2%. This was in light of the mandated inflation and jobs targets having been met. An October rate rise in New Zealand may be inevitable given such rhetoric unless Delta takes hold and lockdowns are continued.

AUD/USD has continued lower and now has strong downward momentum. The shipping cost of iron ore rose to 10-year highs this week and China shut a number of ports. Iron ore prices collapsed as a result.

A quiet data finish for the week is likely to have the market focused on the Fed gathering at Jackson Hole next week. While recent rhetoric has been seen as hawkish, any Fed-speak could have an impact on markets.

AUD/USD Technical Analysis

The breakdown of AUD/USD through 0.7290 shows an acceleration of the downtrend and opens up the potential test of the low from October last year at 0.7010. The strong correlation with the iron ore price shows the impact and susceptibility of the Australian Dollar to trade with China, the largest steel maker globally.

AUD/USD and IRON ORE SHIPPING COSTS (BALTIC DRY FREIGHT INDEX) – Daily Chart

US Dollar Holds High Ground. China Cracks Down as Risk Assets Eye Fed. Does AUD/USD Continue Lower?

Chart created in TradingView

--- Written by Daniel McCarthy, Strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCarthyFX on Twitter

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

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