Australian dollar forecast: AUD/USD weighs risks in APAC trade ahead of weekend

Friday’s Asia-Pacific outlook

Asia-Pacific markets are looking at a mixed open after concerns over central bank tightening subsided overnight. US stocks pushed higher, with the benchmark S&P 500 Index rising 0.42% in New York, ending a two-day losing streak. Bond traders ditched Treasuries, more so along the long end of the maturity spectrum, which steepened key yield curves. The US Dollar Index (DXY) pushed higher into multi-year highs despite the risk taking. That dollar strength is working against the Australian Dollar this morning.

The lockdown in Shanghai, China, which is in its second week, is also dampening sentiment across the APAC region. The extended shutdown, with no sight in end, has weighed on metal prices as factories sit idle in the country’s largest city. That hurts the Australian dollar, given the amount of trade Australia does with China. That said, yesterday’s weaker-than-expected trade balance appears to be providing another headwind to AUD/USD prices.

Oil prices fell again for the WTI and Brent benchmarks. The extended Shanghai lockdown is likely starting to eat into growth prospects. That, along with a larger-than-expected inventory build in the United States, may see weakness continue in the short term. Meanwhile, the European Union continues to spare over the exact details of banning Russian coal, but the latest reports suggest policymakers favor pushing such a ban back to mid-August.

This morning, South Korea’s current account balance for February crossed the wires at $6.42 billion, up sharply from $1.81 billion. Japan will follow this morning with its own account balance for the same period. Analysts expect that figure to come across at 1.4 trillion yen. Traders will also be digging into the Reserve Bank of Australia’s financial stability review due out at 01:30 GMT. The weekend may have traders opting not to hold risky assets, given the rapidly changing situation in Ukraine.

AUD/USD technical forecast

AUD/USD prices are more than 2% lower from the multi-year high of 0.7661, set earlier this week. The 23.6% Fibonacci retracement appears to be underpinning prices. A drop below that level would threaten the rising 20-day Simple Moving Average (SMA). Alternatively, a rebound would bring the 23.6% Fib into view and the 2022 high above that.

AUD/USD daily chart

Follow Thomas Westwater on Twitter @FxWestwater

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