Australian dollar, AUD/USD, US dollar, crude oil, PBOC, RBA, Fed - talking points

The Australian dollar has been pummelled in the last few sessions as negative risk sentiment has kicked in at the same time that commodity markets are reeling.

AUD/USD made a high of 0.7441 last week when commodity markets roared to new heights. They have since retraced much of those gains, most notably in the energy sector. The WTI crude oil futures contract is now trading near US$ 100 bbl against last weeks’ peak of US$ 130.50 bbl.

Industrial metals, precious metals and agricultural commodities have all seen varying degrees of large declines since their highs, but not as severe as energy.

The backdrop for commodities is mixed with the Russian invasion of Ukraine causing mayhem for supply lines, while China appears to be facing economic challenges.

The resurging spread of Covid-19 is causing the lockdown of several major cities as authorities pursue their zero-case policy.

The PBOC left the medium-term lending (MLF) facility unchanged at 2.85%, when the market had been looking for a cut to 2.75%.

The data from China today was stronger than expected with year-to-date year-on-year industrial production coming in at 7.5% instead of 4.0% anticipated.

The RBA minutes for their March meeting were released today and there were no surprises in there. The RBA did say that “Members noted that labour market conditions were the tightest since 2008 and the outlook remained positive.”

The Australian employment numbers are due out on Thursday with the market anticipating 37k jobs were added in February and a slight drop in the unemployment rate to 4.1%.

It would take a blistering upside surprise in the jobs data for the RBA to move on rates at their next meeting in early April.

They have previously said that they will want to see first quarter CPI before making an adjustment. This will not be released until late April, making the May gathering the next potentially “live” meeting.

This contrasts with the US Federal Reserve that has telegraphed a 25-basis point hike on Wednesday, which could undermine AUD/USD.

AUD/USD technical analysis

The Australian dollar crashed below several simple moving averages (SMA) to start the week. This could suggest that bearish momentum is evolving, like it did in November last year. It should be noted though that past performance is not indicative of future results.

Contradicting that, the ascending trend channel remains in place, although the price is close to breaking below the lower bound.

Support could be at the previous lows of 0.70948, 0.70863, 0.70518 and 0.69676.

On the topside, resistance might be at the pivot point of 0.72454 that coincides with the 21-day SMA. Resistance may also be found at the prior highs of 0.73675 and 0.74412.

Follow Daniel McCarthy on Twitter at @DanMcCarthyFX

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