AUD struggling on numerous fronts
The aussie is the “go to” major currency when traders look at risk on/off. Risk-on currencies like AUD do badly in times of stress and especially when stock markets get hit. On the flip side, risk-off currencies like the safe haven JPY and CHF perform strongly during equity downturns.
Of course, AUD is now also tied to the Chinese economy more than ever. This means trade relations between China and the rest of the world are highly correlated with the performance of the aussie.
If we add in domestic issues and concerns around recent new lockdowns, it’s no wonder AUD is the worst performing major this month.
Down nearly 2% versus the greenback in July, we have both the FOMC meeting and also second quarter Australian inflation to contend with in the next 24 hours.
The headline figure of the latter is released overnight and is expected to show the highest reading since 2008, with a hotter than expected core print testing the RBA’s policy guidance. Fuel and food are forecast to boost inflation, but whether this is temporary will be key for policymakers, as it is for those across the globe. Markets are only pricing in around 40bp worth of tightening in the next two years so there is some room here to speculate on a more hawkish turn. Regarding USD, can Chair Powell shift his steadfast dovish stance or will the bulls be left scratching their heads again?
On the technical side, AUD/USD has been in a descending bearish channel since breaking support around 0.76 in mid-June. A series of lower highs and lower lows is evident with the recent shallow rebound staying below last September’s high and resistance at 0.7413.
We note that the pair just confirmed a “death cross” of its 50-day and 200-day moving average which indicates the potential for a major sell-off. First support sits at last week’s low at around 0.729 ahead of major long-term support at 0.7231 where the 200-week moving average resides. Prices will need to get decisively above 0.7413 to turn the downtrend.