AUD/USD bearish trend may be disrupted by China’s market open

Article By: ,  Market Analyst

  • AUD/USD bounced strongly in Asian trade on Monday, mirroring similar strength in Chinese stocks and CNY
  • Chinese financial market movements are likely to be more influential than Chinese economic data released today
  • The path of least resistance for AUD/USD is undeniably lower right now

Contrary to what you may expect, movements in AUD/USD on Tuesday may be dictated by the performance of Chinese financial markets rather than the latest batch of Chinese economic data including Q1 GDP.

AUD/USD was a star performer in Asia on Monday

AUD/USD was a star performer in Asia to start the trading week, gaining strongly after tumbling on Friday. While short covering and relief over geopolitical events over the weekend may have contributed to the gains, it wasn’t until the People’s Bank of China (PBOCX) conducted its daily USD/CNY fix, and mainland stock markets opened sharply higher following a pledge from the government on Friday to take measures to boost capital markets, that AUD/USD really took off.

The PBOC’s continued pushback against market forces seeking to weaken the Chinese yuan has been a supportive factor for the Aussie dollar in Asia recently, helping to limit downside in AUD/USD. And as we saw on Monday, when Chinese stocks rally, AUD/USD often does too.

Which means China’s market should be on the radar today

That suggests near-term AUD/USD price action may be again influenced by Chinese market movements, rather than the economic data which hasn’t really moved the Aussie meaningfully since before the GFC. Traders know to expect a result roughly in line with what the government has been guided for GDP. If the latest batch of PMIs are to be believed, the improvement should be mirrored in monthly readings on retail sales, industrial production and fixed asset investment.

AUD/USD hits 2024 lows

Right now, AUD/USD needs all the help it can get, falling to fresh 2024 lows on Tuesday following another super strong US economic data print, this time for retail sales. With the probability of rate cuts from the Fed evaporating rapidly, it’s now not only widening the United States’ yield advantage over the rest of the world but also starting to generate wobbles in riskier asset classes, generating further downside pressure on the Aussie.

With AUD/USD through support at .6443, bears will be eying off a return to .6390, a level the pair did plenty of work either side of in 2023. However, while traders can sell the break with a stop above .6443 for protection, given how AUD/USD responded to the opening of Chinese markets on Monday, I’d want to see how that goes today before entering a bearish position.

If we do see a bounce in Chinese stocks and another strong CNY fix from the PBOC, traders may want to consider taking long positions with a stop below the current lows for protection. Possible trade targets include .6460, .6480 or former uptrend support just under .6500.

And remains a sell-on-rallies prospect

While the near-term bearish trajectory may reverse, the longer-term picture for AUD/USD remains lower when looking at the weekly chart. Since early 2021 it’s been nothing but a string of lower highs in an elongated downtrend, with the bearish engulfing candle last week pointing to the risk of further downside ahead.

-- Written by David Scutt

Follow David on Twitter @scutty

 

How to trade with City Index

You can trade with City Index by following these four easy steps:

  1. Open an account, or log in if you’re already a customer 

    Open an account in the UK
    Open an account in Australia
    Open an account in Singapore

  2. Search for the market you want to trade in our award-winning platform 
  3. Choose your position and size, and your stop and limit levels 
  4. Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.

© City Index 2024