AUD/USD, ASX 200 battered and bruised: Asian Open – 21st August 2023

Market Summary:

• The US dollar advanced for a fifth consecutive week, rising against all of its forex major peers except GBP
• Rising bond yields have remained a supportive feature for the US dollar, with the 10-year yield rising for a fifth week and closing at a 15-year high. Although the 2-year has paused for breath below 5% and curve from the 3-month to 30-year traded lower on Friday
• The VIX (volatility index) rose to a 2-month high on Friday, although Wall Street managed to regain its footing and snap a 3-day losing streak, although finished lower for a third week
• Eurozone CPI was mostly in line with expectations, showing that underlying inflation has softened further and the pressure for the ECB to tighten further is also receding
• It wasn’t the best week for AUD/USD, having fallen for eight consecutive days by Thursday and lower for a fifth week, closing just below 64c. The combination China-driven risk-off sentiment, weaker employment and suspicions that the RBA realty are done with hiking was the perfect combination to drive it lower.
• Odds favour a bounce for AUD/USD at some point, and there are tentative sighs of stability above the November 10^th low. But whether that is a case for a solid buy remains debatable unless the US dollar gives up its dominance.
• USD/JPY retraced for a second day after reaching an 8-month high on Wednesday
• China’s equity markets continued to decline on Friday as investors remained concerned over the property sector and underwhelmed with levels of stimulus.
• Troubled property developer Country Garden is at risk of default and is to be removed from the Hang Seng index, and JD.com fell -5% on Friday despite posting strong earnings results

Events in focus (AEDT):

• 08:45 – New Zealand trade balance
• 11:15: PBOC’s loan prime rate (LPR): There’s a decent chance we’ll see further easing from the PBOC, particularly on the 5-year LMR as it is the benchmark rate for the flailing property market. The question now is will it be aggressive enough to convince markets that it will actually prop up the property sector. Because failure to cut enough may prompt a negative response from Asian equity markets.
• 13:00 – New Zealand credit card spending
• 16:00 – German PPI

ASX 200 at a glance:

• The ASX 200 fell for a third consecutive day on Friday, although selling pressure was also lower for a third day and the index posted a small inside day (doji)
• Regardless, it was the worst week for the ASX 200 in 50 weeks
• With the lower target of 7100 reached on Thursday, a consolidation pattern on the intraday chart cautions gains on Wall Street on Friday, perhaps the ASX 200 can regain its footing at the start of this week
• But until we see clear evidence of a bottom, the risks remain for further downside and a potential run for 7,000

AUD/USD technical analysis (daily chart):

AUD/USD has fallen -7.8% since its double top in mid July, down for eight days by Thursday and five weeks for the first time this year. However, there are signs of stability above the November 10^th low – the day that the US dollar plunged as markets were excited by a slower than expected US inflation report. Dare I say I suspect we’re due a bounce given Friday’s small Doji, and the markets desire to close above the November 10^th low for a second day. Whether that constitutes as a decent buy signal though is a different matter, given the negative sentiment surrounding AUD/USD. Therefore, I’d prefer to step aside as shorts seem overstretched and any bounce may be short lived. But we can monitor prices for any evidence of a swing high around resistance levels such as the May low, as it may provide a better reward to risk ratio for bears seeking to drive it materially beneath 64c.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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