Australian Dollar, China CPI, AUD/USD Analysis, Sino-Australia Relations – TALKING POINTS
- Stocks on Wall Street prospered with crude oil, petroleum-linked NOK. USD, JPY hammered
- Australian Dollar closely watching Chinese CPI data as Sino-Australia relations deteriorate
- AUD/USD retest of multi-month swing-high with follow-through may inspire a buying spree
Wall Street trade ended on an upbeat note with the Dow Jones, S&P 500 and Nasdaq equity indices closing 0.68, 0.78 and 1.44 percent higher, respectively. Technology-leaning sectors were the session’s biggest winner across all three benchmarks. This might help explain why the tech-leaning Nasdaq was the index with the most gains amongst its peers.
The risk-on tilt in market mood was also reflected in commodity-markets where WTI and Brent saw 0.69 and 0.46 percent gains, respectively. Spot gold prices were up a little over 0.80 percent for the day. In currency markets, the petroleum-linked Norwegian Krone and its commodity-linked peer the Swedish Krona were the session’s winners.
The anti-risk Japanese Yen and Swiss Franc along with the haven-linked US Dollar were hammered on the other hand. The pivot away from more liquid assets to higher-beta – and comparatively less liquid – FX reinforces the notion that investors were feeling optimistic. Credit spreads on investment-grade corporate debt also narrowed while 10-year Treasury yields rose over two percent.
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The source of optimism in financial markets was unclear, as no particular data point or political development registered as a clear catalyst. Hope about another stimulus package in July could be buttressing sentiment with an underlying belief that easy credit access will continue to provide liquidity as long as the coronavirus poses a significant threat to economic activity.
Thursday’s Asia-Pacific Trading Session
Thursday’s Asia-Pacific trading session will have Chinese CPI data as the main known event risk. Investors may be hesitant to commit significant amounts of capital prior to the statistics’ release, and may therefore cause AUD crosses to trade in a narrow range leading up to the time of publication. On a year-on-year basis, economists are expecting a 2.5 percent reading for June, slightly above the prior 2.4 percent print.
As Australia’s largest trading partner, economic reverberations in China have frequently impacted the commodity-linked Aussie. AUD is also caught in the line of fire between Beijing and Canberra as bilateral tensions mount over the latter’s call for an independent investigation into the handling of the coronavirus. China has responded with economic means and threats to diversify their imports of iron ore, Australia’s primary export to the Asian giant.
AUD/USD Analysis
AUD/USD has been trading sideways since early-June after failing to break above a ceiling at 0.7018 and resisting to retest the multi-week swing-low at 0.6642. The pair is timidly climbing towards what could be trend-defining resistance again with expectations that a break above it with follow-through could inspire additional buyers to enter the market.
AUD/USD – Daily Chart
AUD/USD chart created using TradingView
On the other hand, if AUD/USD fails to break above it again, it will likely reinforce the narrative that traders are being gripped by indecision given the uncertainty of the fundamental circumstances. As such, if they begin to believe that gains above 0.7018 are out of reach – for now, at least – then traders may start to reposition their trades to profit from a potential pullback.
— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter
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