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May 14 - 11:00 PM

AUD/USD - COMMENT-AUD/USD To Fall Further As Cracks Start To Widen

By John Noonan  —  May 13 - 11:25 PM

AUD/USD fell to 0.6420 following Australian April employment data that laid bare the depth of the economic slump caused by the coronavirus and resulting lockdowns nL4N2CW0OS. The jobs data may not be enough to break the AUD/USD out of its well-defined 0.6375-0.6570 range, but a negative macro backdrop will likely send it significantly lower.
The AUD/USD may get some near-term support from strong foreign demand for the record AUD19 bln 10-year AGB sale yesterday that saw offshore pick up over 46% of the issuance nL4N2CW0WX.
Any rally resulting from the bond-related flows should be viewed as a selling opportunity. The 19% AUD/USD rally from the March 19 low coincided with a 34% rise in the S&P 500. The rally in risk assets was fuelled by extreme central bank accommodation and faith the reopening of economies around the world would lead to a V-shaped economic recovery.
In the past 24 hours both the RBNZ and Fed Chair Powell warned the economic recovery would be long and drawn out - anything but V-shapednL4N2CV0M8nU5N2BQ002.
A growing number of Wall Street pundits are predicting the S&P 500 will likely retrace towards the March lows before a market recovery can be sustained.
Adding to investor angst is growing friction between the U.S. and China nL1N2CV1M0nL1N2CV16O, along with rising trade tensions between China and Australia nL4N2CV187.
Selling AUD/USD rallies with a stop above 0.6575 is the preferred strategy.
A break below the recent range low around 0.6375 targets the 38.2 Fibonacci retracement at 0.6165.

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Refinitiv IFR Research/Market Commentary


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