Australian Dollar Slumps Amid Tech Selloff, Surging USD Ahead of Key Data

The Australian dollar was the weakest major currency as risk aversion swept through markets and the US dollar climbed to a fresh 14-month high. With Australian CPI, employment and household spending data due, traders are reassessing the RBA outlook while AUD/USD hovers just above a key support zone near 69 cents.

 

View related analysis:

• US Dollar Bulls Charged Into FOMC, Yen Shorts Intensified | COT Report
• Canadian Dollar Outlook: AUD/CAD Eyes Parity as USD/CAD Stretches Higher
• Australian Dollar Outlook: AU and US Inflation Test AUD/USD Resilience
• Japanese Yen Outlook: Are USD/JPY Bulls Right to Ignore MOF Intervention Risk?

 

Australian Dollar Weakens as Tech Stocks Slide and US Dollar Surges

The Australian dollar was the weakest FX major, caught between a tech-driven selloff and a surging US dollar. Technology stocks came under pressure during Asian trade on Tuesday, with KOSPI futures down 10% amid apparent profit-taking from frothy levels. Nikkei futures also declined, weighing on Wall Street sentiment and sending Nasdaq futures down 3.2% and S&P 500 futures 1.4% lower.

The US dollar rose to a 14-month high, with bullish momentum making light work of Monday's alleged bearish reversal candle. As traders grow increasingly confident the Fed will continue hiking rates, and futures traders ramp up bullish dollar bets ahead of last week's FOMC meeting, the greenback has not been an easy market to bet against.

Source: LSEG

 

 

Australian Dollar Weakness Spreads Across Major FX Crosses

The Australian dollar was lower across the board, falling against all FX majors. It suffered notable losses against safe havens such as the Japanese yen and Swiss franc, while the euro and British pound also piled pressure on the struggling Aussie.

• AUD/USD suffered its worst day in two weeks, stalling just above my 69c downside target with bears now potentially eyeing the March low.
• AUD/CAD rolled over from resistance in line with the bearish bias outlined on Monday. However, downside momentum has exceeded my expectations, bringing a break below 0.98 into view.
• AUD/CHF has been slammed lower after bulls once again failed to hold prices above the 2015 high.
• AUD/EUR has formed a prominent swing high and may now be considering a break below the June 11 low.
• AUD/GBP is trading within a handful of pips of its June 10 low, placing it on high alert for a potential bearish breakout.
• AUD/JPY suffered its worst day in 38 sessions, with bears eyeing a potential break of the June 1 'MOF intervention' low.
• AUD/NZD formed a bearish engulfing day, hinting at a lower high relative to its May 26 peak.

 

Source: ICE, TradingView

 

 

 

RBA Outlook Under Scrutiny as Traders Ramp Up Bearish AUD Bets

Large speculators flipped to net-short AUD/USD exposure last week, while asset managers had already done so two weeks earlier. As this data captures the RBA's hold last week, it suggests futures traders are backing the notion that the RBA's tightening cycle is over.

That said, data over the next couple of days could easily sway expectations for the RBA's next move. The monthly CPI report is due in a few hours and, while inflation remains elevated, there are early signs that price pressures are easing, particularly within housing and transportation. Given crude oil prices have fallen significantly over the past month, concerns about inflation may be waning among some RBA members, even if they are unlikely to signal it any time soon.

Employment and household spending data are also released tomorrow. Given both recently delivered weak readings, traders will be on guard for further signs of weakness that could justify their short bets against the Australian dollar.

Source: CFTC (COT), CME, LSEG

 

 

AUD/USD Technical Analysis: Australian Dollar vs US Dollar

We did not see the minor bounce above 70c that I had envisaged at the start of the week. Instead, bears made light work of that level, with the rally stalling just above 69c. Given prices closed near the session low and the daily chart remains in a clear downtrend, a move towards the March low just above 68c appears feasible.

Yield differentials continue to point lower, while risk reversals are finally catching up with AUD/USD spot prices. For once, options traders appear to have been behind the curve, underestimating the downside risks facing the pair.

Implied volatility remains relatively subdued for now, although it could rise if AUD/USD continues to weaken—particularly if Thursday's employment report delivers another soft result.

Source: ICE, TradingView