Following on from this week’s RBA meeting the Australian dollar was unable to strengthen against the US dollar until after the FOMC meeting had passed and the Asia-Pac session went risk-on.
Forex Analysis AUSUSD
AUDUSD has rallied following the Evergrande restructuring news and the absence of any systemic contagion, for now. But as China is in focus and also Australia’s largest trading partner (43% of exports), there could still be repercussions for the Aussie soon.
China’s two-day bank holiday would have put a halt to trading so we could see commodities catch a bid into the end of this week as pent-up demand re-enters the markets. Iron ore is likely being given a temporary boost if the housing market in China doesn’t collapse, with Evergrande saying they will complete projects and fulfill customers' and investors’ expectations. There could also be some inventory accumulation ahead of the Golden Week holiday beginning 1 October.
Last night the FOMC were more-hawkish-than-expected, but so far, the markets have not reacted in the same manner as they did in June. It could be that the lack of immediate rate hikes means the taper is priced into the US10 year benchmark and greenback.
The AUDUSD is likely to remain under pressure whilst below the daily 20-period exponential moving average (ema). And all 3 averages are stacked in a bearish fashion and pointing lower. Momentum is going against the bulls and any rally has been sold into these last couple of days.
Price action is what counts though and with a potentially weakening US dollar and a boost to commodities, there is a chance that the recent descending price action from the September swing high is coming to an end. The retracement to the 61.8% level and 0.7250 price point following on from a clear break of the August balance area, could be the best long setup we have seen for a while. Assuming the AB=CD pattern were to play out the next leg up would be a measured move to the 0.7560 level.
The ActivTrades sentiment indicator is currently bullish with 65% of the traders on the platform also expecting the Australian dollar to appreciate. If this bullish sentiment were to increase much more, I would be tempted to consider a sell-off at the 0.745 swings high or around the B on the previous chart.