AUD/USD, USD/CNH, ASX 200 analysis: Asian Open – 31/08/2023

Market Summary:

• US Q2 growth grew at a slower pace of 2.1% q/q compared with the original estimate of 2.4% (although still slightly above 2% in 1)
• The majority of components saw minor revisions lower, to see which keeps hopes of a ‘soft landing’ for the US economy and expectations the Fed’s rate has peaked alive
• ADP employment was also slightly below expectations at 177k (195k forecast)
• Fed fund futures have trimmed odds of a November hike to 45.5% and a hold in September has risen to 90%
• With bad news being good for sentiment, Wall Street extended its rise for a fourth day although upside volatility was less enthusiastic than Tuesday’s
• The US dollar index fell for a third day and the US yield curve from 2 year and above was also slightly lower
• German CPI was higher than expected, helping EUR/USD produce a clean break above 1.0900 – a level which may provide support for dips
• Australia’s rate of inflation slowed to a 17-month low of 4.9% y/y according to the monthly weighted mean CPI, beneath 5.2% estimates and 5.4% prior.
• With building approvals and construction work done also below estimates, it feels a safe bet to assume the RBA will hold rates at 4.1% again in September – even if there are growing risks of higher wages and petrol prices in Q4
• 91% of economists polled by Reuters expect the Bank of Canada (BOC) to the overnight cash rate steady at their September meeting. However, 60% expect the BOC to eventually raise the OCR at least once more this tightening cycle
• Gold extended its rally and stopped just shy of 1950, although upside momentum is waning and the daily upper wick accounted for ~50% of the day’s range
• WTI crude oil rose to an 11-day high, in line with Monday’s bullish bias to reach the $82 target. I’d be happy to step aside for now given US PCE inflation data is looming

Events in focus (AEDT):

• 09:50 – Japan’s retail sales
• 11:00 – New Zealand business confidence (ANZ)
• 11:30 – Australian capex, housing credit
• 11:30 – BOJ board member Nakamura speaks
• 11:30 – China’s PMIs (manufacturing, services, composite)
• 15:00 – Japan’s construction orders, housing starts
• 19:00 – Eurozone CPI
• 21:30 – US challenger job cuts
• 22:30 – US PCE inflation

ASX 200 at a glance:

• The ASX 200 rallied for a third day posted its strongest day’s gain in seven weeks, reaching the 7300 upside target mentioned in yesterday’s report
• Given the flat performance of SPI 200 futures overnight and softer lead from Wall Street, I suspect we could be in for a narrow-ranged day which could meander around the 7300 area (without a fresh catalyst)
• Intraday resistance: 7320, 7330
• Intraday support: 7280, 7250, 7240

AUD/USD technical analysis (1-hour chart):

The support zone around 0.6450 – 0.6460 provided the base for dip buyers post AU CPI the ideal zone for the anticipated pop higher. Whilst prices have retraced all of its US session gains, support has been found at the weekly R1 pivot point. Given we have US inflation data looming, I suspect volatility will be on the quieter side in today’s Asian and H1 European session, but we could still see the Aussie bounce to a degree. And if prices dip lower, bulls could again look for that support zone that held despite softer AU inflation data yesterday.

A soft US inflation report could send AUD/USD towards or beyond 0.6500. Note that the upper 1-day implied volatility band is at 0.6508.

USD/CNH technical analysis (daily chart):

USD/CNH is holding up well despite the weakness of the US dollar elsewhere. I suspect the yuan is being supported here by the ‘powers that be’, so perhaps another way of looking at this is that USD/CNH continues to look good for bullish setups – especially if the US dollar stops falling elsewhere.

USD/CNH remains above the June highs, so I continue to favour seeking dips around the cycle lows for an initial move to 7.350. Should prices instead retreat further, bulls could seek evidence of a swing low above trend support or the 2019 / 2020 highs – 7.200 area.

-- Written by Matt Simpson

Follow Matt on Twitter @cLeverEdge

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