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Apr 22 - 11:55 AM

AUD/USD - COMMENT-AUD/USD Probability Of Trading Below 0.7000 Increasing

By Christopher Romano  —  Apr 22 - 10:10 AM

AUD/USD dropped to a 1-month low Friday as it probes key 0.7290/70 support but the probability of trading at sub-0.7000 levels is growing given China growth and currency concerns, as well as Fed expectations and technicals.

China’s zero-covid policy lock downs have driven downgrades to China's GDP outlook nL2N2WG01V and increased concerns over global growth nL3N2WH2MH.

Economic uncertainty is driving investors out of China's yuan and into safer assets nL3N2WH2MH.
USD/CNH rallied to a 1-year high and may test 6.6000 nL2N2WK0X7.
Commodity currencies are dealing with similar weakness as investors rein in their global growth expectations.

U.S.
interest rates continue to hit new highs as investors expect the Fed to take an aggressive stance to fight inflation.
Eurodollars EDM3 have fallen to fresh lows and the U.S. 2-year yield US2YT=RR hit fresh highs as investors price in a higher Fed terminal rate.
That pricing is helping to underpin the U.S. dollar.

Technicals also highlight downside risks for AUD/USD.
Daily charts show a head-and-shoulders top forming.
Falling daily and monthly RSIs imply downside momentum is in place, and AUD/USD has pierced the 50% Fibo retracement of the 0.6968-0.7661 rally.

These bearish factors put the wind at the backs of AUD/USD shorts, and a test of the January monthly low at 0.6968 cannot be ruled out.

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Source:
Refinitiv IFR Research/Market Commentary

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