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Australian Dollar Blitzed by China Covid Concerns Souring Sentiment. Where to for AUD/USD?

Australian Dollar Blitzed by China Covid Concerns Souring Sentiment. Where to for AUD/USD?

Daniel McCarthy, Strategist

Australian Dollar, AUD/USD, US Dollar, China, Hang Seng Index, Crude Oil - Talking Points

  • The Australian Dollar tanked after the US Dollar resumed strengthening
  • China is facing scrutiny over their zero-case Covid-19 related lockdowns
  • Risk and growth linked assets are struggling. Will AUD/USD resume its downtrend?

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The Australian Dollar tumbled to start the week while the US Dollar and Japanese Yen leapt higher on deteriorating global growth prospects.

China’s pursuit of a zero-case Covid-19 policy is being challenged as cases increase across the country. Continual lockdowns are facing protests in several major cities in a test of the Communist party’s resolve to maintain the policy.

Risk and growth-aligned assets have consequently come under pressure. APAC equities are a sea of red with Hong Kong’s Hang Seng Index (HSI) leading the way south. It traded more than 2% down at one stage.

Crude oil made a new low for the year with the WTI futures contract dipping below US$ 74 bbl while the Brent contract is near US$ 81 bbl. Gold is steady around US$ 1,750 an ounce at the time of going to print.

In addition to unfavourable macro conditions for the Aussie Dollar, retail sales for October came in at -0.2% month-on-month rather than 0.5% anticipated and 0.6% previously.

Additionally, RBA Governor Philip Lowe spoke before a Senate estimate hearing. In regard to achieving a soft landing for the economy, he said, “it’s not guaranteed but where I sit today, I think we have a better chance than most other countries of pulling it off.”

The RBA will meet Tuesday next week to decide on monetary policy and the market has priced in a 25 basis point hike.

There are a number of ECB speakers lined up for today, including President Christine Lagarde. Later on, Williams and Bullard from the Fed will also be crossing the wires.

The full economic calendar can be viewed here.

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AUD/USD TECHNICAL ANALYSIS

AUD/USD has peeled back from the recent high of 0.6798 and that level might continue to offer resistance. A descending trend line is near a prior peak at 0.6916 and could also offer resistance.

On the downside, support may lie at the previous lows of 0.6585 and 0.6387, the latter also coincides with an ascending trend line. Between those levels, a breakpoint at 0.6548 could also provide support.

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Chart created in TradingView

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

Please contact Daniel via @DanMcCathyFX on Twitter

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

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