- AUD / USD is consolidating around the 0.7200 level with the help of decent Asian PMIs awaiting key US data reports.
- The pair is vulnerable to further selling from a technical perspective, with bears looking at perhaps a test of 0.7100.
After Monday’s slide as a result of the USD strength, but also likely some technical selling pressure, the AUD/USD has regained some composure on Tuesday and is turning both sides of the 0.7200 level. Market commentators are citing the strength of China’s coal prices (a key Australian export), as well as a positive Caixin Chinese Manufacturing PMI survey, which was better than expected at 50.9 in December versus a forecast of 50.0, as an endorsement of the Australian dollar. More broadly, the Asian manufacturing PMI rose to 52.7 from 52.3 in November, indicating broad economic strength in the region. With AUD / USD rising 0.1% from current levels near 0.7200, the coin is among the best performing G10 currencies on the day.
However, aside from the yen falling to multi-year lows against the US dollar amid the recent surge in US (and world) yields, currency markets are quiet Tuesday. Currency traders are awaiting US ISM Manufacturing PMI data (December) and JOLTS job vacancies (November) at 15:00 GMT, ahead of the ISM Services PMI and report release. official labor market (also both for December) later in the week. Note that the Australian manufacturing PMI for December was also released during Asia Pacific hours, with the overall index declining to 57.7 from 59.2 in November.
IHS Markit said that “some growth momentum for Australian manufacturing was lost in December as momentum from the reopening faded and supply constraints hampered production, according to panelists. That said, the report continued,” momentum current growth remains strong by historical standards and companies have maintained an optimistic view regarding future production. ”The Australian dollar paid no attention to the latest PMI report, just as it ignored the fact that Covid hospitalizations -19 have risen in recent days to record highs in parts of the country Traders are betting that there will be no further lockdowns in Australia, as government authorities now appear to believe that high vaccination rates will prevent widespread serious diseases.
Given that the AUD / USD has recently broken south of a short-term bullish channel, the scope for further technically driven losses is high. Short-term bears may target a test of the mid-December lows at the 0.7100 area, in case the 0.7200 level disappears. From a technical / quantitative perspective, there is plenty of room for selling pressure to develop; The 14-day Relative Strength Index is at a comfortable 49, well above the 30 “oversold” level. Meanwhile, the AUD / USD Z-score for its 200-day moving average is currently around -1.0 (meaning it is roughly one standard deviation below its 200 DMA). Typically, a 200 Z DMA score less than -2.0 is an indicator of “oversold” conditions.
Technical levels
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