Australian Dollar Analysis and Talking Points
- AUD/USD | Vulnerable to Sharp Retracement on US-China Tensions
- Australian Dollar Technical Outlook
AUD/USD | Vulnerable to Sharp Retracement on US-China Tensions
As risk sentiment takes a turn lower, high-beta currencies such as the Australian Dollar has been among the underperformers. As we highlighted earlier in the week, RORO flows (Risk On/Risk Off) have driven short-term price action and today looks to be no exception, among the reasons behind this, is due to the rising correlation between currency markets and risk appetite (S&P 500). That said, with the unwind of stock market optimism as tensions between the US-China boil over, after China announced that it would impose new national-security laws on Hong Kong, the Australian Dollar may have seen a short-term top at 0.6600.
| Change in | Longs | Shorts | OI |
| Daily | -18% | 21% | -8% |
| Weekly | -29% | 64% | -12% |
When looking at the signal for US-China tensions, it is key to watch the Chinese Yuan as a barometer for market sentiment. Overnight, the Offshore Yuan (CNH) had come under notable selling with USD/CNH edging towards the late April highs of 7.16, a break above would likely leave the relatively elevated Australian Dollar vulnerable to a sharper retracement from its recent highs.
Australian Dollar Technical Outlook
On the downside, prior resistance, now support is situated at 0.6494, which marks the 100DMA. A break below leaves AUD/USD at risk of a larger drop towards 0.6450, however, for confirmation of a short-term top at 0.6600, a closing break below 0.6400 would be needed. On the upside, a bounce-back would likely be capped at 0.6600 before key resistance in the form of the 200DMA residing at 0.6660. Given the rising tensions between the US and China, the Australian Dollar appears to be vulnerable at current levels. Bias is to the downside, however, 0.6400 handle is key for further shakeout of recent longs.
Implied Weekly range (0.6420-0.6600)
| Support | Resistance | ||
|---|---|---|---|
| 0.6494 | 100DMA | 0.6600 | - |
| 0.6450 | - | 0.6616 | Weekly High |
| 0.6400-10 | 76.4% Fib | 0.6660 | 200DMA |
AUD/USD Price Chart: Daily Time Frame
Source: IG Charts
--- Written by Justin McQueen, Market Analyst
Follow Justin on Twitter @JMcQueenFX
