The Australian dollar has continued its downward swing as we start the new trading week. Currently, AUD/USD is trading at 0.7234, down 0.39% on the day. The currency has now fallen over 1% in each of the past two weeks, and the negative trend could well continue this week.
Risk aversion sends Aussie lower
The Aussie is marked by a high correlation with risk sentiment and commodity prices, and both factors are weighing on the currency in the Monday session. Commodities such as copper and platinum are down significantly after Chinese Prime Minister Li said that China would implement “market tools” in order to keep commodity prices stable. Ordinarily, such a statement would not have such a strong impact on commodities, but thin liquidity due to a China holiday has resulted in a distorted move.
The financial markets are also alarmed over the crisis surrounding Evergrande, as there are fears that the Chinese property giant could default, which has led to the company’s shares falling to an 11-year low. This has led to a loss in risk appetite which is weighing on the Australian dollar.
Aside from these developments, the US dollar is gaining ground ahead of the FOMC meeting on Wednesday. The markets are once again primed for a signal from the Fed on tapering. We’re unlikely to see the Fed announce a taper, but if the policy makers hint that the November meeting will be live. The dot-plot will also be closely monitored – if the Fed brings forward rate hike expections, the US dollar could bulldoze upwards.
With the US releasing only minor indicators ahead of the Wednesday FOMC meeting, the US dollar could have a quiet start to the week, unless there are some headline-grabbing statements from Fed members about tapering which shake up the markets.
- There is resistance at 0.7433, followed by 0.7512
- On the downside, the pair is testing support at 0.7226 is fluid. Below, there is support at 0.7187