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Australian Dollar Forecast: AUD/USD, AUD/JPY Hinge on Trade Talks

Australian Dollar Forecast: AUD/USD, AUD/JPY Hinge on Trade Talks

2019-10-07 23:41:00
Rich Dvorak, Junior Analyst
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AUSTRALIAN DOLLAR PRICE FORECAST: AUDUSD & AUDJPY EYE US-CHINA TRADE TALKS

  • The Australian Dollar is on its back foot to start the trading week driven by the latest US-China trade war headlines that have curbed risk appetite
  • AUDUSD & AUDJPY stand to come under pressure if market sentiment falters in response to US-China trade talks taking a turn for the worse
  • Check out our free Trading Guides & Forecasts for comprehensive insight

US-China trade relations have been at a standstill since mid-September when it seemed Sino-American tensions were thawing amid “gestures of good will” from both parties. With a lack of adverse updates on the trade war between Washington and Beijing, risk assets like equities and the Australian Dollar have remained largely afloat. That could soon change, however, with US-China trade talks set to resume this week and headlines already pointing to a rise in friction between the two economic powerhouses.

AUSTRALIAN DOLLAR PRICE BOGGED DOWN BY US-CHINA TRADE WAR

Australian Dollar Price Chart At Risk Ahead of Trade War Talks

Chart created by @RichDvorakFX with TradingView

Considering the heavy reliance Australia’s economy places on China, Australian Dollar price action is closely tied to the Chinese economy and the Yuan. As such, there is a strong observable relationship between AUDUSD, AUDJPY and the renminbi. Consequently, Australian Dollar outlook over the short and medium terms stands to be impacted materially by upcoming US-China trade talks.

AUDUSD PRICE CHART: DAILY TIME FRAME (JULY 03, 2019 TO OCTOBER 07, 2019)

AUDUSD Price Chart Technical Analysis

AUDUSD remains long-bogged down and spot price action could be pointing to further weakness in the Australian Dollar ahead. A modest rebound in spot AUDUSD off multi-year lows was thwarted when the currency pair touched the 23.6% Fibonacci retracement of its recent bearish leg beginning mid-July. The 0.6770 has previously served as a major area of confluence that will look to keep Australian Dollar upside at bay going forward.

This technical level is also underpinned by the downward-sloping 20-day and 50-day simple moving averages. Although, spot AUDUSD price action may gravitate around the 0.6740 mark which is highlighted by the JPY flash crash induced low printed back in January. Nevertheless, there remains serious potential that spot AUDUSD could target fresh year-to-date lows beneath the 0.6700 handle if US-China trade relations sour.

AUDUSD – IG CLIENT SENTIMENT INDEX PRICE CHART: 4-HOUR TIME FRAME (SEPTEMBER 24, 2019 TO OCTOBER 07, 2019)

Australian Dollar Price Chart

According to the latest IG Client Sentiment Report, 68.59% of spot AUDUSD retail forex traders are net-long resulting in a long-to-short ratio of 2.18. We typically take a contrarian view to crowd sentiment and the fact that client positioning remains net-long suggests that spot AUDUSD prices could continue to fall.

AUDJPY PRICE CHART: DAILY TIME FRAME (APRIL 10, 2019 TO OCTOBER 07, 2019)

AUDJPY Price Chart Technical Analysis

Shifting gears to spot AUDJPY price action, which is closely tied to market sentiment and risk appetite, this currency pair could continue its broad drift lower back toward the 70.000 handle if US-China trade talks fail to bear any tangible fruit. I noted in my prior Australian Dollar Forecast that spot AUDJPY faced serious technical obstacles for trend continuation and was at risk of reversing lower back when it was trading slightly around 74.000.

AUDJPY bulls now face intimidating technical resistance that stands to deter potential upside, which is underpinned by the 23.6% Fib of its year-to-date trading range as well as the 50-DMA. The MACD indicator also speaks to recent bearish momentum exhibited by spot AUDJPY.

AUDJPY – IG CLIENT SENTIMENT INDEX PRICE CHART: 4-HOUR TIME FRAME (SEPTEMBER 24, 2019 TO OCTOBER 07, 2019)

Australian Dollar Price Chart

According to the latest IG Client Sentiment Report, 56.33% of spot AUDJPY retail forex traders are net-long resulting in a long-to-short ratio of 1.29. We typically take a contrarian view to crowd sentiment and the fact that client positioning remains net-long suggests that spot AUDJPY prices could continue to fall.

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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