Chart of the Day: AUDUSD holds above 64 US cents in risk-on rally
The Australian dollar is riding the waves of a risk-in mood, making a strong 1.37% gain against the USD yesterday and closing above 64 US cents. The soaring AUD mirrors yesterday’s rally in US equities but also reflects that markets see a quicker economic recovery for Australia with lockdown restrictions due to ease soon.
"Daily chart: The AUD is staging a strong recovery, with AUDUSD closing above the 61.8% Fib retracement of the December to March sell-off. Price holds above the 5 EMA (green), 20 EMA (blue), and 50 EMA (purple), and below the 200 MA (black)."
AUDUSD closed at a multi-week high yesterday, buoyed by a rally in US equities. AUDUSD failed to hold above 64 US cents two weeks ago, but a lot has changed since then. Australian states are gradually easing restrictions, including the biggest state NSW, building optimism that a domestic economic recovery could come sooner than expected.
Yesterday’s close came above the 61.8% Fib retracement of the December high to March low. If it can close above this level again today, it’ll be a good sign the Aussie bulls have taken control. I’m also watching the 0.6400 handle and the 5-day EMA (green), currently at 0.64096, a natural support level. Beyond that, AUDUSD was well supported by the 20-day EMA (blue) last week.
The AUD will remain sensitive to risk sentiment. Just as a risk-on mood has driven this rally, a shift to risk-off if global turmoil lifts will drive the Aussie lower.
AUD minor pairs
EURAUD: The pair continues to look bearish as the AUD stages a strong recovery and the EUR makes some choppy sideways movements. EURAUD 50-day and 20-day EMA crossed over yesterday.
GBPAUD: This pair is at a pivotal point: having found support at 1.9195. If the AUD bulls can close below here, there should be room for more GBPAUD downside. Australia is easing pandemic restrictions as the curve flattens while the UK continues to battle high case numbers.
AUDNZD: The kiwi is rising too, but not as fast as the AUD. AUDNZD looks bullish and I’m eyeing a move into 1.0800, a level last seen in November. New Zealand and states in Australia are beginning to slowly lift lockdown restrictions.
Chart of the Day: AUD tumbled after Aussie job reports
AUD slumped to 0.6317 Wednesday on the modest risk aversion after a seven-day losing streak. It tumbled during Asian trading hours despite the better-than-expected employment report.
The unemployment rate has slightly risen to 5.2% in March, up from 5.1% in February, sitting well below 5.4% expectation. Total employment increased by 5,900 against -30k. The participation rate was little changed at 65.9%. Since these figures only captured the data in the first two weeks of March and therefore didn’t reflect the full impact of the shutdowns, AUD failed to find some support and extended the decline.
It’s worth noting that some employees temporarily staying at home without pay are not likely to be considered unemployed by ABS. So the April employment data will offer a full picture of the labour market during the time of lockdown.
The weak opening today following a bearish pattern circled on the daily chart suggests a pause of the recent bullish trend. AUD looks bearish in the short term, with 0.6279 being the initial support, which is the confluence of 10 EMA and ascending trendline since March 19. A break here will bring the pair to challenge 0.6238, the 61.8% fibo level. Should the pair hold above the trendline, the downside risk is limited.
On the upside, the pair needs to break above the descending trendline (0.6480) coming from January to reverse the trend and open the door for 0.6684.
S&P 500 futures
As shown in the chart below, the AUDUSD (blue) has been following S&P 500 futures (white), with the high correlation shown between these two. As the US equities returned to the technical bull market within a short period of time, AUD, a global risk proxy, also followed and surged since late March.
AUDUSD (blue) vs S&P 500 futures (white)
So where the US equity markets go, the AUD will likely follow.
However, a batch of downbeat US economic data released yesterday triggered the risk aversion in the market and dragged the S&P 500 futures lower, heavily weighing on AUD. The irony being poor US data actually supports the USD, given the AUD is a proxy of broad risk appetite.
The economic condition of China is no doubt another key factor for AUD.
The chart below shows the correlation between USDAUD (blue, or AUDUSD inverted ) vs USDCNH (white). It’s easy to find that CNH has a high correlation with AUD, or in other words, a higher USDCNH could weigh on the AUDUSD.
USDAUD (blue, or AUDUSD inverted ) vs USDCNH (white)
The PBOC yesterday lowered the Medium-term Loan Facility (MLF) rate by 20 bp to 2.95%, putting CNH under pressure especially when we saw the strong USD demands. USDCNH extended the gain to 7.0831 in Asian session. Therefore, AUD reversed the bounce seen following the jobs data and dropped further.
Keep an eye on the upcoming China GDP due Friday, which is expected to drive the AUD.
AUDUSD（蓝） vs 标普500期货（白）