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Australian Dollar, AUDUSD, AUDJPY, EURAUD – Talking Points
- AUDUSD Continues To Hold Above 0.7000 Despite Rising Headwinds
- AUDJPY Remains Supported by Key Moving Average
- EURAUD falls as Europe faces constant headwinds
The outlook for the Australian dollar remains mixed as regional catalysts and sentiment collide with macro concerns over growth. Recent weakness in Chinese economic data weighed on the Aussie despite upbeat risk sentiment during the summer months. A relatively softer tone for risk assets this week saw the Australian dollar come out of the boil, but the downside may be limited. The potential for inflation to spike has sparked the interest of many after last week’s US CPI and PPI prints, the upside appreciation could continue if the PCE also weakens further down the line this month. But as Chinese weakness continues to weigh on commodities, the AUD may continue to struggle and recent swings may persist.
AUDUSD pulled back from recent swing highs above 0.7100 after breaking lower from a symmetrical triangle pattern. The price has since fallen to support at 0.7000, a massive psychological level for the pair. The AUDUSD made a massive shift in late July, rallying over 450 pips to new yearly lows. With the RBA and Federal Reserve on warpaths toward tighter monetary policy, the near-term direction may be determined by a mix of risk sentiment and economic data. Dismal US housing data crossed the wires on Tuesday, further fueling fears of a downturn. Traders were also unresponsive to the release of the RBA minutes.
AUDUSD 4 hour chart
Chart created with TradingView
AUDJPY has traded heavily sideways for most of the past few months after the long-awaited upside break from the 80s low. area 92 and 96 than in the last few months. While interest rate differentials have supported the Aussie here, the yen has recently drawn offers as investors continue to question the nature of global growth.
If these fears grow as Europe and China struggle, the AUDJPY may consider exploring the lower end of its range below 92.00. This drop could be exacerbated if the peak of inflation is in fact here, which means that central banks can ease their tightening regimes. Currently, the pair remains supported by the 100-day moving average, but has so far found resistance at 94.50. Upside beyond this zone remains limited as 95.20-96.00 largely capped uptrends.
AUDJPY Daily Chart
Chart created with TradingView
Despite a bid over the past few sessions following weak Chinese economic data, the EURAUD remains positioned in a strong downtrend. The euro has been crushed lately as the European Central Bank embarked on its first tightening cycle in a decade with the continent facing a recession.
While European policymakers haven’t been as forthright as their British counterparts, recession could be imminent as the eurozone struggles to control energy costs. German and French energy costs have soared as a record hot summer has deepened the current crisis. The drought has seen the Rhine fall to dangerously low levels, limiting the ability to rely on hydropower while exacerbating supply chain disruptions as barges struggle to cross the river.
With this plethora of headwinds surrounding the continent, it is difficult to make a bullish case for the Euro. Further rate hikes from the ECB could be negative for the currency as they could further restrict economic activity in the region. That being said, the EURAUD may soon return to the yearly low below 1.44. The pair has already broken through a major support zone between 1.45 and 1.46, which has now turned into resistance. A failure here coupled with continued Eurozone weakness could usher in new near-term yearly lows.
EURAUD Daily Chart
Chart created with TradingView
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— Written by Brendan Fagan
Contact Brendanuse the comments section below or @BrendanFaganFX on Twitter
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