The Australian dollar appears poised to break lower and at least test its 2021 low at 0.7106, as downside risks build and investor risk appetite grows increasingly cautious.
The AUD has been surprisingly resilient in the face of collapsing iron ore prices nL4N2QB4BA, rising China growth and systemic concerns nL1N2QU02VnL1N2QU325 and a relatively dovish Reserve Bank of Australia nL1N2QN02A.
But the hawkish turn in U.S. Federal Reserve expectations, along with clear signals equity markets are starting to correct lower, could be the final straws needed to send the Australian dollar significantly lower.
The AUD/USD completed a bearish outside day on Tuesday, but is still holding above 0.7220-25, where it has bottomed on five of the last seven trading days.
A break below 0.7215 initially targets the 2021 low reached on Aug 20 at 0.7106.
Key Fibonacci support comes in at 0.7053, the 38.2 retracement of the 2020-2021 rise. Only a break above 0.7325 would void the bearish setup.
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