AUSTRALIAN DOLLAR ANALYSIS
- Delta variant plaguing Aussie.
- Australian linked commodities weaken.
- Telling rectangle pattern on daily AUD/USD chart.
- IG Client Sentiment (IGCS) favors bears.
AUD/USD FUNDAMENTAL BACKDROP
Australians along with their currency are feeling the pinch after the recent spike in COVID-19 cases (see chart below). The implementation of lockdowns have hampered AUD gains while commodity linked prices have slumped. Iron ore- the countries biggest export has fallen this exacerbating the already unfavorable situation. Falling commodity prices were given further impetus by the similar delta variant spread in China who is a major importer of Australian commodities. Consequent data such as GDP and retail sales will likely be negatively impacted which would put addition downward pressure on the pair.
NEW COVID-19 CASES: CHINA AND AUSTRALIA
Chart prepared by Warren Venketas, Refinitiv
This week U.S. CPI data printed positively for Aussie bulls which has kept the pair fluctuating within a sideways range. As we move towards the Jackson Hole symposium in late August, market participants will keep a close eye on QE taper talk which could save the fading AUD should a hawkish tilt arise.
Other key economic data such as CPI (yellow) and unemployment (red) statistics have reacted predictably to the accommodative environment which is a source of support for the currency (see chart below). 10-year benchmark government bond yields (grey) have pushed off August lows and the largely positive historic correlation between yields and the AUD/USD pair may give bulls hope should this trend continue.
AUSTRALIAN CPI, UNEMPLOYMENT, 10Y BENCHMARK GOVERNMENT BOND YIELD
Chart prepared by Warren Venketas, Refinitiv
AUD/USD TECHNICAL ANALYSIS
AUD/USD DAILY CHART:
Chart prepared by Warren Venketas, IG
The daily AUD/USD chart above reflects a consolidatory period since mid-July. Prior to this, it looked as if a rising wedge could have been unfolding but has since played out. Current price action outlines a rectangle pattern that may be preparing traders for a breakout. A confirmation close above or below the respective rectangle resistance/support levels could give a direction to this potential breakout.
The Relative Strength Index (RSI) is slowly moving out of oversold territory and suggesting slowing bearish momentum although spot prices are moving sideways.
The 20-day EMA (purple) is holding steady as a source of short-term resistance with a break above likely to support bulls in an attempt to push toward 0.7450.
Key resistance levels:
- 0.7500
- 0.7450 – coincides with 50-day EMA
- 20-day EMA
Key support levels:
- 0.7289
- 0.7250
- 0.7183
IG CLIENT SENTIMENT DATA POINTS TO SHORT-TERM AUSSIE WEAKNESS
| Change in | Longs | Shorts | OI |
| Daily | -10% | 20% | 1% |
| Weekly | -2% | -7% | -4% |
IGCS shows retail traders are net long on AUD/USD, with 60% of traders currently holding long positions (as of this writing). At DailyFX we typically take a contrarian view to crowd sentiment, and the fact traders are net-long is suggestive of a bearish bias.
--- Written by Warren Venketas for DailyFX.com
Contact and follow Warren on Twitter: @WVenketas
