Australian Dollar, AUD/USD, Consumer Confidence, Covid, China – Talking Points
- Australian Dollar looks to Westpac Consumer Confidence index
- Chinese economic data on tap this week as PBOC balances stimulus
- AUD/USD may retest former wedge support before moving lower
Wednesday’s Asia-Pacific Outlook
Markets across the Asia Pacific region may trade higher on Wednesday following a solid performance from stocks on Wall Street during Tuesday trade. The Dow Jones Industrial Average (DJIA) rose to a record high. Darling technology stocks lagged. Instead, investors moved into industrial, energy, and materials stocks after the Senate passed a sweeping infrastructure package. The risk-sensitive Australian Dollar reflected the chipper mood.
The Aussie Dollar will see its own specific event risk cross the wires today in the form of August’s Westpac Consumer Confidence index. A drop in the reading from the month prior wouldn’t be surprising, given the widespread lockdowns across the country as policymakers attempt to contain the highly transmissible Delta Covid variant. New South Wales saw 356 locally-sourced cases on Tuesday, according to the state government.
Surging cases and the resulting lockdowns have plunged the Aussie Dollar to new lows this year versus the US Dollar in recent months as traders priced in a slower rate of growth in Australia’s economy. AUD/USD has dropped nearly 5% since June. That said, traders have already priced in an economic contraction. This may see the Australian Dollar appear somewhat resilient to further bad news in the short term. That is not to say prices can’t weaken further, but downside reactions may appear relatively mild to losses seen in June and July.
Elsewhere in the Asia Pacific region, New Zealand will report third-quarter business inflation expectations. China is also expected to report new Yuan loans data for July sometimethis week, although no exact date is provided, so traders should keep their eyes peeled. Analysts expect CNY 1.2 trillion in new loans for last month, which would be down from CNY $2.12 trillion in June.
If so, that will account for a slowdown in credit growth. The People’s Bank of China (PBOC) has taken measures to put the brakes on stimulus in recent months, although growing Covid cases threaten that narrative. The Australian Dollar may see volatility if the upcoming Chinese data surprises markets, given the economic link between the two countries.
AUD/USD Technical Outlook:
AUD/USD is tracking higher after breaking lower from a Rising Wedge pattern. Prices may return to the wedge’s former support level to retest before resuming the downtrend. That is not untypical of these post-wedge moves. A break higher, however, may provide some bullish energy to extend the move. The most likely path forward remains to the downside as prices remain below the pattern’s limits.
AUD/USD 8-Hour Chart
Chart created with TradingView
Australian Dollar TRADING RESOURCES
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwateron Twitter