Australian Dollar, AUD/USD, Fed, China, PMIs, Commodities – Talking Points
- APAC traders to a take cautious stance after US stocks fall, US Dollar rises on Fed comments
- China’s Caixin services sector PMI in focus today after Shanghai lockdown extends to whole city
- AUD/USD aims higher after bulls clear the October 2021 high while RSI nears 70 overbought level
Wednesday’s Asia-Pacific Outlook
The market is pointing to a mixed open in the Asia-Pacific session after US stocks declined on monetary policy comments. Federal Reserve Governor Lael Brainard stated overnight that taming inflation is of the utmost importance. The US Dollar Index (DXY) hit a fresh 2022 high following Ms. Brainard’s statement as interest rate expectations firmed up.
Oil prices fell against the stronger Greenback. A surprise US stockpile build added to the downward pressure. The American Petroleum Institute (API) said crude stocks for the week ending April 01 rose by over one million barrels. Meanwhile, backwardation in the WTI term structure eased further, suggesting that supply concerns may be easing. Energy traders are awaiting the IEA’s plan to coordinate the release of oil stockpiles in conjunction with the United States’ SPR release.
The worsening Covid situation in China’s mega-city Shanghai is another likely culprit for the narrowing time spreads in oil prices. Shanghai reported over 13k cases on Monday, prompting authorities to lock down the entire city. Before that, only sections of the city were restricted amid mass testing. The trouble isn’t contained to just Shanghai, however. Tangshan, a major steel-producing city with nearly 8 million residents, is under lockdown, in addition to smaller coastal cities.
Today’s economic calendar is rather light, which may leave the prevailing risk-off tone intact today. Hong Kong will see a March PMI figure from S&P Global cross the wires. China’s Caixin will report its March purchasing managers’ index (PMI) for the non-manufacturing sector. Analysts see activity dropping to 49.7, which would indicate a contraction in the country’s services sector.
That may add to the strong Dollar’s pressure on metal prices like copper and platinum, along with other demand-sensitive commodities like oil. It could also halt the Aussie Dollar’s rally from yesterday when the RBA policy decision boosted the currency’s sentiment. The RBA’s chart pack will cross the wires today, as is always the case following a policy decision.
AUD/USD Technical Outlook
AUD/USD has ripped higher, setting its best mark since 16 June 2021 before easing slightly. That move was preceded by a consolidation pattern, which mapped out a Bull Flag pattern. The Relative Strength Index (RSI) appears to be on track to cross above the 70 overbought level, even though that doesn’t mean prices won’t continue higher. However, a pullback may bring prices to the October 2021 high at 0.7556. Alternatively, bulls will look to keep pushing prices higher, although a break under that 2021 high may lead to a deeper contraction.
AUD/USD Daily Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter