The Australian economy could be doing very well if it were not for elements beyond their control. The Reserve Bank of Australia is keen to amend monetary policy and is likely to be one of the first central banks to tighten. However, continuing COVID disruptions and Chinese policy are currently weakening the Australian dollar against the strengthening global currency.
AUDUSD forex analysis
In today’s London session the forex markets have been trading against the US dollar strength. This week is a big week for the US dollar and USA’s economy, with CPI data out tomorrow and the semi-annual Fed testimony to congress. The Fed is very unlikely to react to the rising CPI as they have stated and will re-iterate this week that they are willing to allow the US economy to run hot for a longer period of time, that they are expecting inflation to last longer but ultimately, they see it as a transitory effect and that over the course of the year, the average inflation should be at or around their base case and within their target range.
The Reserve Bank of Australia is more likely to taper along with the likes of the RBNZ and BOC as those economies bar the COVID-19 disruptions are likely to have economies running hotter due to their close ties to the energy and metals markets.
The US dollar is currently in a small range between $92-$92.8 but is above the daily 200 exponential moving averages and since the June FOMC meeting has been making enough of a move towards higher highs and higher lows that the 20-day and 50-day ema’s are both rising and diverging. The price action could consolidate around these levels until the 50 crosses the 200 ema, at which point investors and traders may take the opportunity to join in on the bullish trend. $93.50 is still key though having been resistant back in April.
The US benchmark yields are coming down from their peak in March and the worry of inflationary pressures has subsided. Commodity prices within the base metals have started to come off since May as seen in the Copper and Steel markets. If Oil were to top out below $77 for now this would bring down the costs of all materials and goods, and again ease the inflationary pressures. China has also been active in the metal markets releasing national stocks rather than building on their hoard. This is also a major factor in why the price of copper, aluminum, and zinc have pulled off from their highs.
Sentiment towards the Australian economy has been affected by the soaring relationship between the Australian government and the Chinese authorities and also because of the major disruptions caused by the COVID-19. Australia is still not out of the woods with rising cases of their Delta variant in spite of Sydney being in lockdown. Australia has previously successfully suppressed COVID-19 flare-ups through snap lockdowns, speedy contact tracing, and tough social distancing rules.
The combination of China, commodity prices, COVID-19, and a rising US dollar is putting pressure on the Aussie.
A while ago I discussed how the 6-month consolidation period between last December and June 2021 looked like a Head and Shoulders chart pattern, and that a break of support could lead to a depreciation in prices down towards 0.7200. The recent price action shows that the daily 200 ema is acting as significant resistance and the idea of selling rips on lower time frames is my current trading idea.
Because this week is a big week for data and economic releases, I wouldn’t want to marry a trade for more than an intraday punt. So using the higher time frame for direction (bearish) and an m15/m30 chart for entry, I would be looking for reasons to sell intraday rips. The idea could be to wait for the stochastic (10,3,3) to be indicating overbought and for price action to be in the dynamic resistance areas of the moving averages and at that point look for a trigger to get short.
The only caveat is that you have to be very mindful of upcoming news events as these prices could be volatile and the spreads will widen as liquidity dries up ahead of Tier 1 news.