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Australian Dollar fails to capitalize on the Commodity Boom

The coronavirus disruptions and Chinese authorities are making it very hard for the Australian dollar of late. The lockdowns are being extended and the population is for many reasons unvaccinated.AUDUSD has been looking weak for some time and is currently at daily resistance.

AUDUSD Forex Analysis

Dr. Copper gained more than 4% in July and is within range to test an all-time high. This is signaling that the supply is failing to meet the demand as economies continue to expand regardless of the Coronavirus Delta variant. Nickel and Aluminium have climbed over 7% and 3.1% respectively. Natural gas surged in the price for the US and Oil continues to trade around the 2021 highs

Even with a commodity boom, the Australian dollar is underperforming. Higher iron ore prices are not encouraging new investment like in previous commodity cycles and Beijing’s new regulatory measures meant that even as the US dollar crashed from a recent high, the Aussie was unable to capitalize.

The Reserve Bank of Australia August meeting this week is likely to focus on the unknowns from the Delta variant. Australia is in the middle of a protracted lockdown which is likely to cost the economy, so the RBA is very unlikely to be Hawkish or hint at any tapering. Only 14% of Australians are fully vaccinated and it is emerging that countries with a higher rate of vaccinations are starting to outperform those that have a low take up of the vaccines.

Last week the FOMC delivered its latest monetary statement with few surprises. Chair Jerome Powell was clear in his press conference that the US economic progress made thus far does not represent “substantial further progress,”. But he gave no quantifiable measure of what Progress means Just that it remains “a ways away.” Q2 real GDP growth edged up to a 6.5% annual rate following a 6.3% advance in Q1. The print was well below expectations with consensus at 8.5%.

The US GDP YoY is currently at 12.20% whereas the Australian equivalent is 1.10% and the interest rate differential is in the USA’s favour too with the US rate at 0.25% compared to 0.10% from Australia. The US economy is the world’s largest, and the US dollar has done well of late to hold up above the $90 level rather than continue its decades-long downtrend. Currently, the ActivTrader sentiment indicator shows that the traders are 71% bullish on the Australian dollar versus the greenback regardless of the macroeconomics.

Today the US dollar is weakening across the majority of the major forex pairs and looking at the heatmap the Australian dollar is catching a bid.

Of late when we have seen the commodity pairs bullish that has signalled a more risk-on sentiment in the markets and maybe today the US ISM will go some way to turning this heatmap even more risk-on as the yen is mixed and the Swissy is stronger than the US dollar.

The AUDUSD daily chart above shows the most recent price action as being in a very tight descending channel, which of late have been more likely to break higher. The head and shoulders pattern hasn’t reached its projected target to the downside yet and the daily exponential moving averages are in my opinion still likely to offer more resistance.

I would be tempted to follow the Stochastic oscillator (10,3,3) for intraday trading opportunities, and be aware of price action when the Stochastic was above the 70 levels and signalling overbought. Currently, price is trading into the moving averages and there is a rising channel that could be defined, so a break lower than the overnight sessions swing low is on the cards today.