The Asia Pacific trading session is off to a quiet start to kick off the week, with the risk-sensitive Australian Dollar tracking slightly higher versus the US Dollar.
Market sentiment degraded last week, sending equity markets and risk-sensitive currencies lower as traders shifted into the safety and liquidity of the US Dollar. AUD/USD’s upbeat start to the week suggests traders may have regained some appetite for risk.
However, sentiment remains fragile. The risk-off trend may continue amid ongoing economic growth concerns as Covid-induced lockdowns drag on economists’ forecasts.
That, combined with lofty valuations across equity markets and low government bond yields, present an atmosphere that could send traders shifting further to cash. This would put the US Dollar in a prime position to benefit if risks break down further.
That said, the week ahead presents several economic events that can serve as catalysts to shift traders back into risk assets. Equity markets may also benefit from a “buy the dip” theme that has permeated into retail trading culture during the Covid era. A still relatively dovish Federal Reserve has helped keep deeper contractions in check.
Australia’s consumer inflation expectations for September will cross the wires this morning. The latest round of data showed the figure dropping to 3.3% in August from 3.7% in July.
The main event for the Asia-Pacific session, however, comes later this week on Thursday, when job numbers for August will be published. Analysts expect the Australian economy lost 70k jobs in August, according to a Bloomberg survey.
A worse-than-expected figure could reverse the Australian Dollar’s monthly gain versus the Greenback. AUD/USD is up just over 0.5% this month following three consecutive down months. Lockdowns across New South Wales (NSW) and Victoria put the brakes on upbeat forecasts from earlier this year.
NSW reported 1,262 new local Covid cases on Sunday. Victoria saw 392 new cases. Traders will also digest foreign direct investment (FDI) data out of China for August.
The latest round of COT data from the Commodity Futures Trading Commission (CFTC) shows speculators' long positions in the Australian Dollar fell to the lowest since June 2020 (34,859). Non-commercial long bets fell 13,499 from the prior week. Short bets also fell but remain historically elevated. This suggests the Australian Dollar's weakness may continue.
AUD/USD found support at the 26-day Exponential Moving Average (EMA) last week after extending lower from its monthly high. Currently, prices are gyrating around the 50-day Simple Moving average between the 23.6% and 38.2% Fibonacci retracement levels. MACD broke below its centerline, a bearish signal.
A break under the 26-day EMA could see prices extend lower, with a break under the 23.6% Fib opening the door for an attack on a descending trendline that may offer support. Alternatively, clearing above the 50-day SMA would bring the September high back into focus if prices manage to break the 23.6% Fib. Source.