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Jan 03 - 09:55 PM

AUD/USD - COMMENT-Global Growth Fears To Undermine AUD/USD In Early 2023

By John Noonan  —  Jan 03 - 08:00 PM

Global growth concerns appear to be the dominant theme as 2023 gets underway and their negative impact on demand for key commodities is likely to keep the Australian dollar under pressure.

AUD/USD rose nearly 12% between mid-October and mid-December, on broad U.S. dollar weakness and as hopes China would take the necessary steps to open its economy and spur demand underpinned sentiment.

China's radical reopening - suddenly abandoning strict COVID protocols - has resulted in a massive wave of infections, according to unofficial estimates. Investors fearthe disruptions to activity and demand may become critical enough to slow China's economy and impact global supply chains.

The IMF has warned the challenges facing the global economy in 2023 will be more difficult to overcome than in 2022.
Unlike previous economic downturns, central banks are not in a position to provide support, as inflation-fighting remains the top priority.

The Australian dollar is vulnerable due to its close correlation to commodity prices and role as a proxy for China sentiment.

The AUD/USD fell over 1% on Tuesday, trading below 0.6700 at one stage.
The next level of support is at 0.6616, the 38.2 Fibonacci retracement of the October-December rise.
A break below that level targets the 61.8 Fibo at 0.6446.

Key resistance is at the 200-day moving average at 0.6852; shorts should place a stop-loss above that reading.

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Source:
Refinitiv IFR Research/Market Commentary

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