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Australian Dollar Forecast: AUD/USD Positives Fade, China Starts FX Intervention

Australian Dollar Forecast: AUD/USD Positives Fade, China Starts FX Intervention

Justin McQueen, Strategist

Australian Dollar Analysis and Talking Points

  • AUD Positives Beginning to Fade
  • AUD/USD Levels to Watch
  • IG Client Sentiment Signals Sideways AUD/USD likely to Persist

AUD Positives Beginning to Fade

The Australian Dollar has not exactly been the most exciting currency as of late, although, in fairness to the AUD, you could probably say that about most G10 pairs. AUD/USD has been lacking direction and thus traded within a broad 100pip range over the past month. However, while the pair has been underpinned by USD weakness, domestic AUD factors are starting to turn against the currency.

  1. Base metals have rolled over in the last two weeks with iron ore and copper down 23% and 7% respectively. China also warning of excessive speculation in commodities markets.
  2. Australian yields vs USTs remain muted, while banks also expect the RBA to lag in the rate hike cycle against major G10 banks thus making over high yielders more attractive.
  3. Chinese authorities have intervened to curb Yuan appreciation with state banks reportedly buying USDCNY at 6.40, which closed at its lowest level in nearly 3yrs. Yuan daily midpoint will be in focus going forward.

USD/CNH (Offshore Yuan) Chart: Weekly Time Frame

Australian Dollar Forecast: AUD/USD Positives Fade, China Starts FX Intervention

Source: Refinitiv

AUD/USD Levels to Watch

That being said, as I have mentioned earlier, weakness in the US Dollar has been dominant with the Federal Reserve remaining adamant that rising inflation is likely transitory. Making a pullback in AUD/USD harder to come by. Taking a look at the chart below, the 50DMA continues to provide support, which also coincides with the rising trendline from the YTD low. Should support give way, the 0.7600 handle will likely come into focus with the 200DMA at 0.7514 below. On the topside, key resistance resides at 0.7815-20, while it would take a close above 0.7850 to negate downside pressure.

AUD/USD Chart: Daily Time Frame

Australian Dollar Forecast: AUD/USD Positives Fade, China Starts FX Intervention

Source: Refinitiv

Moving Average (MA) Explained for Traders

IG Client Sentiment Signals Sideways AUD/USD likely to Persist

Retail trader data shows 50.52% of traders are net-long with the ratio of traders long to short at 1.02 to 1. The number of traders net-long is 8.59% lower than yesterday and 1.45% higher from last week, while the number of traders net-short is 13.84% higher than yesterday and 1.53% lower from last week.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USD prices may continue to fall.

Positioning is less net-long than yesterday but more net-long from last week. The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias.

Australian Dollar Forecast: AUD/USD Positives Fade, China Starts FX Intervention

Source: IG, DailyFX

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

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