New Zealand Dollar, ASX 200, RBA, US Dollar, Treasury Yields, Aluminum – Asia Pacific Market Open
Monday’s Recap – The US Dollar Outperforms as the New Zealand Dollar Sinks
Despite a rather rosy Monday for market sentiment, the risk-sensitive New Zealand Dollar and Australian Dollar were some of the worst-performing G10 currencies. In Asia, the Nikkei 225 and Hang Seng closed 1.83% and 1.01% higher respectively. Meanwhile, in Europe the DAX 30 and FTSE 100 climbed 0.96% and 0.68% respectively. US bourses were offline for the Labor Day holiday.
Excluding the Norwegian Krone, the US Dollar outperformed its G10 counterparts. This might have been due to rising longer-term Treasury yields. The 10-year rate climbed, extending its rise from last week’s non-farm payrolls report. This may have been due to prospects that the Fed may raise rates later-than-expected, meaning that growth-supportive policy is here to stay to the benefit of the long run.
Another factor boosting the US Dollar might have been profit-taking, especially for pairs like AUD/USD and NZD/USD. Those have seen strong gains since the middle of August. Meanwhile, Aluminum futures touched the most in over a decade. A military coup seized power in Guinea, threatening local Bauxite production. The latter is a key component to making aluminum, and the nation is one of the largest exporters of Bauxite.
NZD/USD Technical Analysis
NZD/USD seems to be struggling to push above the ceiling of a bullish Falling Wedge chart pattern. The uptrend paused on falling resistance, and a downward candle followed afterwards. Still, a breakout is possible. Key resistance seems to be at 0.7170. Clearing the latter may open the door to reversing the dominant downtrend since February. This also followed a bullish Golden Cross between the 20- and 50-day Simple Moving Averages. In the event of a turn lower, the latter could come into play as key support points.
Tuesday’s Asia Pacific Trading Session – RBA Rate Decision, AUD/USD, ASX 200
Asia-Pacific markets could still be vulnerable to lower than normal liquidity conditions. There are a couple of key economic event risks to watch. The first is the Reserve Bank of Australia rate decision. A survey conducted by Bloomberg found that 10 out of 16 economists anticipate the central bank to delay a tapering plan it envisioned earlier this year due to lockdowns threatening local economic growth.
While the central bank previously noted that it will continue reviewing its plan for the bond purchase program, Governor Philip Lowe said that delaying might not aid the economy as much compared to what the government is capable of. As such a hawkish surprise, whereby the central bank sticks to its original tapering timeline, could bring volatility into the Australian Dollar and ASX 200.
At an unspecified time today, China will release August’s trade balance report. Lockdowns in the world’s second-largest economy have been fueling growth slowdown concerns. That could be reflected in softer trading activity, which might bode ill for the sentiment-sensitive Aussie and Kiwi Dollars, especially once the RBA is in the rearview.
ASX 200 Technical Analysis
ASX 200 futures have been mostly in a consolidative state since the middle of August. The index appears to be trading within the boundaries of a bearish Rising Wedge chart pattern. A breakout lower may open the door to a material turn lower. As such, keep a close eye on key support. That seems to be the 38.2% Fibonacci extension at 7432, highlighted in red on the chart below.
— Written by Daniel Dubrovsky, Strategist for DailyFX.com
To contact Daniel, use the comments section below or @ddubrovskyFX on Twitter