Australian Dollar Fundamental Backdrop

The Australian dollar found support after the Chinese government increased stimulus to 1 trillion Yuan to tackle a vulnerable property market, COVID hit supply chains, and more recently power disruptions in certain parts of China. The announcement coupled with the USD/CNY fix that was stronger than model projections sent a message out that the PBoC thinks the currency is depreciating against the U.S. dollar at an unwanted pace. Markets reacted favorably to Emerging Market (EM) and pro-growth currencies like the AUD strengthening – stronger commodity complex.

The Chinese 5-year CDS (see graphic below) which is a traditional hedge against defaults now shows a marked decline indicating that the Chinese government’s efforts to quell a property crisis may be working.

Chinese 5-year CDS chart

(Click on image to enlarge)

Source: Refinitiv

Later today, the last high-impact data point ahead of the Jackson Hole Economic Symposium tomorrow comes via U.S. GDP (see economic calendar below) while the GDP deflator print may carry more weight this time round as inflation remains at the heart of the Fed’s agenda.

Economic Calendar

Source: DailyFX economic calendar

Technical Analysis

AUD/USD Daily Chart

(Click on image to enlarge)

Chart prepared by Warren Venketas, IG

AUD/USD price action on the daily chart has bulls pushing toward the 0.7000 psychological resistance zone but I think we may not see this ahead of Jackson Hole. Markets remain tentative and this short-term rally may be cut short as we move through the EU and U.S. trading sessions respectively.

Key resistance levels:

• 0.7000/100-day EMA (yellow)

Key support levels:

• 20-day (purple)/50-day EMA (blue)
• 0.6900
   

IG Client Sentiment Data: Bullish

IGCS shows retail traders are currently LONG on AUD/USD, with 59% of traders currently holding long positions. At DailyFX we typically take a contrarian view to crowd sentiment however, recent changes in long and short positioning results in a short-term bullish bias.

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