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Abstract:The Australian Dollar outlook is grim on rising fears of a US recession, yield curve inversion. AUD/USD may shrug off rosy jobs data ahead on fears of slowing global growth.
Asia Pacific Market Open Talking Points
Australian Dollar at risk as sentiment sours on rising US recession worries
Aussie gains on jobs report could dwindle as global growth prospects fade
AUD/USD downside momentum fading but positioning offers bearish bias
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Australian Dollar at Risk as US Yield Curve Inversion Sinks Sentiment
The sentiment-linked Australian and New Zealand Dollars underperformed over the past 24 hours as rising fears of a US recession roiled financial markets. The Dow Jones Industrial dropped over 3 percent in its worst day on Wall Street this year as the S&P 500 fell by almost as much. Meanwhile, the anti-risk Japanese Yen and similarly-behaving Swiss Franc soared.
The source of panic likely stemmed from the inversion of the spread between US 10-year and 2-year government bond yields. The higher premium for near-term Treasuries compared to those maturing at a later date is historically seen as an acute signal of a looming recession. The more closely watched 10-year and 3-month spread has already been inverted since the end of May.
Thursdays Asia Pacific Trading Session
Ahead, this leaves the sentiment-linked Australian Dollar at risk as it awaits an upcoming local employment report. Australia is anticipated to add 14.0k jobs in July and it may very well beat estimates. Relative to economists expectations, data has been tending to surprise to the upside in Australia as of late. While this may bode well for AUD/USD in the near-term, down the road it may fall flat on its face if global risk aversion escalates.
Join me as I cover AUD/USD and the Australian jobs report beginning at 1:15 GMT as I discuss the Aussie outlook
Taking a look at S&P 500 futures, they are pointing notably lower heading into Thursdays Asia Pacific trading session. This may lead local benchmark stock indexes, such as the Nikkei 225 and ASX 200, to the downside. As such, this poses a threat to the Aussie while potentially benefiting the anti-risk Japanese Yen if the turmoil in markets continues.
AUD/USD Technical Analysis
Positive RSI divergence in AUD/USD does warn of ebbing momentum to the downside, offering bears a sign of caution. This may precede a turn higher or translate into further consolidation. The latter has been more of the case as of late as prices hover above March 2009 lows. Near-term resistance appears to be well-solidified as a range between 0.6827 and 0.6865. These are the former 2019 lows.
AUD/USD Daily Chart
Chart Created in TradingView
AUD/USD IG Client Sentiment
Meanwhile, IG Client Positioning is offering a stronger AUD/USD bearish contrarian trading bias. The number of net-short Aussie trading is unwinding quicker than net-long positioning. If this continues, we may see the downtrend in the Australian Dollar pick up pace. If you would like to learn more about using this tool in your trading strategy, join me every week on Wednesdays at 00:00 GMT to see how!
FX Trading Resources
See how the S&P 500 is viewed by the trading community at the DailyFX Sentiment Page
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See our study on the history of trade wars to learn how it might influence financial markets!
Disclaimer:
The views in this article only represent the author's personal views, and do not constitute investment advice on this platform. This platform does not guarantee the accuracy, completeness and timeliness of the information in the article, and will not be liable for any loss caused by the use of or reliance on the information in the article.
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