Daily brief: Australian dollar at risk as market sentiment sours after Powell comments

Monday’s Asia-Pacific outlook

The risk-sensitive Australian dollar may fall versus the US dollar today as Asia-Pacific traders digest comments from the Federal Reserve Chair that were delivered on Friday. Mr. Powell was firm in his delivery that rate hikes would likely continue, which saw overnight index swaps and Fed funds futures move to price in a more aggressive path of tightening. The implications for US equities were extremely negative, sending major indexes deeply lower.

Asia-Pacific markets are likely to feel the weight of Powell’s actions in today’s trading. Asian equity futures are pointing to a lower open, and the US dollar is moving higher after gaining last week. The Aussie sank against the Greenback amid the risk-off move during New York trading hours, trimming the majority of AUD/USD’s early-week gains. The currency was performing well up until then, with copper and iron ore prices helping.

A slate of new measures announced by Chinese policymakers helped to brighten market sentiment across the APAC region last week, explaining the lift across base metal prices. Today offers another potentially sentiment-shifting data release, with the preliminary print for Australia’s July retail sales set to cross the wires. Analysts expect a 0.3% month-over-month increase, up from 0.2% in June. A beat on that print would bode well for AUD.

China’s industrial performance declined in July, according to the National Bureau of Statistics (NBS). Later this week, China’s manufacturing purchasing managers’ index (PMI) from the NBS is due out. The decline was likely due to factory closures resulting from Covid-related disruptions. That activity will likely stay suppressed in August from more recent factory disruptions caused by energy rationing.

AUD/USD technical outlook

AUD/USD is threatening the August swing lower after the currency pair trimmed most of its gains last week, ending only around a quarter of a percent higher. Friday’s movement brought prices below the 50-day Simple Moving Average (SMA), weakening its technical posture. Meanwhile, the MACD and RSI oscillators are tracking below their respective midpoints.

AUD/USD daily chart

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