Australian Dollar Forecast: AUD/USD Positives Fade, China Starts FX Intervention

• AUD Positives Beginning to Fade

• AUD/USD Levels to Watch

• IG Client Sentiment Signals Sideways AUD/USD likely to Persist

The Australian Dollar has not exactly been the most exciting currency as of late, although, in fairness to the AUD, you could probably say that about most G10 pairs. AUD/USD has been lacking direction and thus traded within a broad 100pip range over the past month. However, while the pair has been underpinned by USD weakness, domestic AUD factors are starting to turn against the currency.

• Base metals have rolled over in the last two weeks with iron ore and copper down 23% and 7% respectively. China also warning of excessive speculation in commodities markets.

• Australian yields vs USTs remain muted, while banks also expect the RBA to lag in the rate hike cycle against major G10 banks thus making over high yielders more attractive.

• Chinese authorities have intervened to curb Yuan appreciation with state banks reportedly buying USDCNY at 6.40, which closed at its lowest level in nearly 3yrs. Yuan daily midpoint will be in focus going forward.

USD/CNH (Offshore Yuan) Chart: Weekly Time Frame

AUD/USD LEVELS TO WATCH

That being said, as I have mentioned earlier, weakness in the US Dollar has been dominant with the Federal Reserve remaining adamant that rising inflation is likely transitory. Making a pullback in AUD/USD harder to come by. Taking a look at the chart below, the 50DMA continues to provide support, which also coincides with the rising trendline from the YTD low. Should support give way, the 0.7600 handle will likely come into focus with the 200DMA at 0.7514 below. On the topside, key resistance resides at 0.7815-20, while it would take a close above 0.7850 to negate downside pressure.

AUD/USD Chart: Daily Time Frame



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