AUDUSD pair rebounded in a rising channel formation after finding support above July 2020 levels at 0.69949. Last Friday on 17th Jan, the pair declined to test the channel support amid risk-off mood and the release of mixed economic data from China. The US Dollar Index (DXY) which gauges the US dollar’s strength against a basket of rival currencies is hovering at 95.16. In this article, we will discuss on a few factors playing a part in the currency pair’s movement.
Coronavirus woes
Firstly, the rebound in the US dollar could be attributed to fears surrounding the coronavirus. Market is bracing for another round of potential global supply chain disruptions as China who maintains a zero-Covid policy, imposed lockdowns to keep the Omicron variant at bay. Currently, there are at least 20 million people in China under lockdown. China which is home to about 30% of global manufacturing, faces risk of another round of shutdowns at Chinese factories and ports. The high transmissibility of the Omicron variant poses a huge test against China’s strategy to completely eradicate Covid-19 cases. Should the Covid situation in China worsen, a fresh wave of supply chain disruptions would send the safe-haven currency US dollar higher.
Mixed Chinese data
As Australia’s largest two-way trading partner in goods and services, China’s economic situation plays a vital role in the strength of the Australian dollars. December Retail Sales in China were weaker than expected, growing at only 1.7% year over year as compared of 3.7% forecasts.
Moreover, China’s PBoC lowered the interest rate on some CNY700B (roughly $100.2B) worth of medium-term lending facility loans to financial institutions to 2.85% from 2.95%. This move to stimulate growth in the Chinese economy, if successful, could boost the Aussie dollar.
Fed’s rate hike in March
Another factor putting on pressure on the AUDUSD pair is the imminent rate hike by the US Federal Reserve (Fed). Last week, Fed policymakers signalled that they will start raising US interest rates in March to curb the highest inflation in nearly 40 years. Fed Governor Lael Brainard said on Thursday that the Fed “has projected several rate hikes over the course of the year”. Moreover, comments from San Francisco Federal Reserve Bank President Mary Daly that a March interest rate hike “seems a quite reasonable thing”, citing 3.9% unemployment rate and high inflation, also helped provide strength to the US dollar.
Technical Analysis
After breaking down from a rising channel on 19th November 2021, AUDUSD fell and retested July 2020 low before bouncing off the historical support level. After the rebound, the currency pair ascended in another rising channel but has so far stayed below the lower band resistance of the rising channel that occurred from August to November 2021. The Relative Strength Index (RSI) indicates that buyers and sellers of AUDUSD are still indecisive with the reading hovering around neutrality line at 50. 50 daily moving average buoys the pair from further decline and the lower band of rising channel should provide support for AUDUSD. If the AUDUSD rises, the long term 200 daily moving average resistance will be an important level to break before further advance.
Key events to watch this week:
Wednesday, January 19
USD – Building Permits (MoM)(Dec), Housing Starts (MoM)(Dec)
Thursday, January 20
AUD – Consumer Inflation Expectations (Jan), Employment Change s.a. (Dec), Fulltime Employment (Dec), Unemployment Rate s.a. (Dec)
USD – Initial Jobless Claims (Jan 14), Initial Jobless Claims 4-week average (Jan 14), Philadelphia Fed Manufacturing Survey (Jan)
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