AUD May Extend Rally on CPI Data Despite Regional Political Risks

Australian Dollar, AUD/USD, Coronavirus, Australia CPI Data – TALKING POINTS

• Australian Dollar could rise on local CPI data amid signs of economic stabilization

• China-sensitive currency for now may shrug at tension between Washington, Beijing for now

• AUD/USD rally could encounter a degree of friction at a multi-month resistance zone

Wall Street stocks ended on a bleak note with the Dow Jones, S&P 500 and Nasdaq indices closing 0.77, 0.65 and 1.27 percent lower, respectively. Technology stocks and the famous FAANG group – Facebook, Apple, Amazon, Netflix and Google – were all in the red. On the other hand, lockdown-sensitive stocks – particularly airlines – found a tailwind.

Foreign exchange markets reflected a risk-off tilt with the anti-risk Japanese Yen and Swiss Franc as the sessions winners at the expensive of the Australian and New Zealand Dollars and Swedish Krona. The source of risk aversion may have come in part from concern about timely implementation of another US fiscal stimulus package as Democrats and Republicans wrangle over how the funds ought to be distributed.

The Federal Reserve announced that it will be extending its emergency lending programs through December 31. Despite the underlying message of economic uncertainty that this policy extension implies, markets did not appear to significantly react to the news. This announcement came just under 24 hours ahead of the FOMC rate decision and assessment of economic activity.

Wednesdays Asia-Pacific Trading Session

The Australian Dollar is thrust into the spotlight today ahead of the release of local CPI data. Analysts estimate a 0.4 percent contraction, far below the prior 2.2 percent increase on a year-on-year basis. A better-than-expected print may extend the Australian Dollars gains, particularly against the hammered, haven-linked US Dollar.

AUD – so far, at least – has managed to remain relatively immune to concern over escalating US-China geopolitical tensions. In addition to playing a game of diplomatic tit-for-tat by closing consulates in each respective country, Washington has taken a more aggressive approach to Beijings activities in the South China Sea. For now, this regional risk remains a background theme, but should things escalate, AUD may fall.

AUD/USD Analysis

AUD/USD may extend its gains, though the pair may encounter some friction at an early-2019 resistance range between 0.7181 and 0.7206. Failure to extend beyond the lower bound could cast a shadow over AUD/USDs short-term trajectory and cause it to retreat to a recently-cleared ceiling at 0.7018. Conversely, breaking above immediate resistance may inspire additional buyers to enter long positions.