Daily briefing: AUD/USD buoyed after PBOC action as Wall Street stocks sink

Tuesday’s Asia-Pacific outlook

Asia-Pacific markets face increasing headwinds after stocks fell and the US dollar surged overnight in New York. The benchmark S&P 500 index closed 2.14% lower, while the tech-heavy Nasdaq-100 Index fell 2.66% to the lowest since early August. The VIX volatility index jumped over 15%, posting its biggest daily gain since June.

Treasury yields rose as traders positioned themselves ahead of this weekend when central bankers from around the world will meet at Jackson Hole. The Fed pivot thesis, which largely drove equity strength over the last few weeks, appears to have fallen apart. That may lead to additional Treasury buying throughout the week. Traders expect Federal Reserve Chair Jerome Powell to reaffirm the central bank’s stance against fighting inflation.

The People’s Bank of China (PBOC) cut the one- and five-year loan prime rates on Monday by five and fifteen basis points, respectively. The larger-than-expected cut in the five-year LPR, linked to mortgage lending, sent a signal of government support for the ailing property sector. Chinese equity markets closed mostly higher following the moves. Still, many remain skeptical and see broader measures being necessary to provide an adequate backstop to the country’s housing market.

Gold prices fell against a surging US dollar and Treasury yields. The yellow metal has lost ground for seven straight days, bringing XAU to the lowest level since July 27. Copper held up better against the USD, likely underpinned by the PBOC’s recent actions. In Europe, natural gas prices rocketed higher once again, this time over fears that a key Russian pipeline will remain closed after a 3-day maintenance period scheduled for next week.

AUD/USD technical outlook

The Australian dollar was nearly unchanged versus the US dollar overnight. AUD/USD trimmed its overnight gains and failed to hold above the 50-day Simple Moving Average, however. The MACD and RSI oscillators have moderated, although still below their respective midpoints. Further consolidation may occur during today’s session. A break below the nearby August low at 0.6859 would threaten a resumption of the prior bearish trend.

AUD/USD daily chart

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