Australian Dollar, AUD/USD, Westpac Consumer Confidence, Technical Outlook – Talking Points
- US Dollar strength and rising Treasury yields pressure Australian Dollar, risk-sensitive FX
- Australia’s Westpac consumer confidence for January fell to 102.2, dragging enthusiasm
- AUD/USD drops back to major conflict area, with the technical outlook appearing neutral
Wednesday’s Asia-Pacific Outlook
A stronger US Dollar aided by higher Treasury yields pressured risk-sensitive currencies heading into Wednesday’s APAC session. The yield surge sent US equities on Wall Street lower overnight, with the tech-heavy Nasdaq 100 Index (NDX) closing 2.57% lower. The 5-year Treasury yield rose to its highest mark since early January 2020.
Rate traders are pricing in a full 100 basis points of hiking into the Fed’s benchmark interest rate by the end of this year, according to overnight interest swaps (OIS). Some analysts are forecasting a 50 basis point hike in the March FOMC meeting. The broad-based US Dollar DXY index rose over half a percent overnight. The bearish tone on Wall Street will likely carry over into the APAC stock markets. Elsewhere, oil prices are gaining after a reported pipeline explosion in northern Iraq, which has a capacity of around 450k barrels per day.
Meanwhile, there are concerns of contagion risks coming from China’s property sector after dollar bonds of Country Garden Holdings Co. tumbled at the start of the week. The tumble in bond prices for the country’s largest real estate developer has put pressure back on Chinese policymakers to take action to stabilize the housing market. That may come through a cut to the medium-term lending facility rate as soon as this week. The shorter-term lending rate was lowered by 5 basis points in December.
Asian stocks were mixed on Tuesday after the Bank of Japan kept its policy unchanged while increasing the inflation target modestly. However, the broad risk-off mood this morning is likely to weigh on stocks today. This morning, Australia’s Westpac consumer confidence for January crossed the wires at 102.2, down from December’s 104.3 print. The Omicron variant appears to have dragged down enthusiasm, with many Aussies fearing another round of lockdowns.
AUD/USD Technical Forecast
AUD/USD is back at a major area of conflict that has served as support and resistance since late September. Prices failed to clear above the falling 100-day Simple Moving Average (SMA) last week, and a further drop will open the 23.6% Fibonacci retracement level. Below that and the November 2020 low at 0.6991 would shift into focus. The MACD and RSI oscillators are neutral, leaving the short-term technical outlook on a rather neutral footing for now.
AUD/USD Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
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