After an overnight tumble what comes next for the AUDUSD
Month-end is generally expected to produce volatility in FX as real money asset managers rebalance their underlying bond, equity, and commodity portfolios which then necessitates rebalancing in currencies.
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However, other factors have contributed to the overnight surge higher in the US dollar, including last week's hawkish FOMC, nerves over the US debt ceiling and infrastructure negations, as well as rising bond yields and energy inflation fears.
Locally the AUDUSD has also been buffeted by headwinds somewhat unique to its situation.
The energy crisis in China and the Evergrande fiasco's impact on the property sector have seen both steel production and economic activity fall sharply. As a result, Goldman's have taken the knife to China's Q3 GDP forecasts and note that the global iron market has flipped from an 80Mt deficit in 1H21 to a 54Mt surplus in 2H21. Not a good outcome for the AUDUSD.
Over the weekend, the IMF warned that Australian authorities need to tighten lending standards to cool a red-hot housing market.
On Tuesday, the Council of Financial Regulators (CFR) comprising the RBA, APRA, and ASIC released a statement from its Quarterly meeting. The key takeaway is that speed limits on high debt to income lending will be likely be implemented at the FCR's next meeting in December.
If anything, this morning's upside surprise in August building approvals at +6.8% versus expectations of a 5% decline only reinforces the need to cool the housing market.
Overall these factors are likely to continue to remain a headwind for the AUDUSD and overshadow the imminent re-opening of NSW and Victoria.
Technically after breaking below support at .7220, the August .7106 low appears vulnerable. Should the .7106 level break, the risks are for a move towards medium-term support .7000c area. To negate the short and medium-term downside risks, the AUDUSD would need to first reclaim resistance at .7230/40 and then at .7320/30.
Source Tradingview. The figures stated areas of September 30, 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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