AUD/USD: commodities bleeding, weighing on the outlook, watch US election result for possible dollar upside

• AUD/USD is back on the offer having been capped at R2 0.7239 following a number of inputs to the price action that include China's President Xi 'jawboning' following weaker data that we have continued to see, trying to ensure markets that China is on a steady footing. 
• AUD/USD is currently trading at 0.7220 from a high of 1.0244 and from a low of 0.7205, under some pressure at the top of the Nov's rally as commodities bleed. 

In a speech made at an expo that was designed to demonstrate goodwill amid mounting frictions with the U.S. and others, Xi largely echoed previous promises that China would accelerate the opening of the education, telecommunications and cultural sectors while protecting foreign companies' interests and punishing violations of intellectual property rights. He was also upbeat when he that said he expects China to import $30 trillion worth of goods and $10 trillion worth of services in the next 15 years.

In summary, he promised to lower tariffs, broaden market access and import more from overseas at the start of a trade expo. But interesting, he said nothing relating to the US and Trump - He did criticise protectionist natures though. There was little in the way of direct impact on the Aussie but it had certainly underpinned a less negative tone in markets of which AUD has been reading of late, recovering from the 0.7020 lows on hopes that there will be a deal between the US and China. 

CRB index on the backfoot

We have seen an equally impressive rally in copper since the end of October, a barometer of global economic performance, but prices there have also hit a brick wall. commodities are being dragged lower by Oil prices falling over in the wake of a U.S. the Trump administration granting waivers to allow eight nations to continue buying Iranian crude despite U.S.-driven economic sanctions against the Islamic Republic. News reports said President Donald Trump on Monday told reporters that he wants to “go a little bit slower” when it comes to sanctions on Iranian oil because he doesn’t walk to drive up oil prices. That also helped to ease worries about tighter global supplies.

In turn, this has sent WTI down to $61.38. It was at $76.81 a month ago and $65.50 at the start of November. Consequently, the Thompson CRB index has fallen over the same time frame from 201.72 to 190.66 today - It is hard to see how the Aussie can continue to perform when the commodity complex is experiencing such pressures and the decoupling from the CRB index may be a warning sign that AUD is overvalued. 

Eyes on a possible spike in the DXY post US elections - (sell rumour buy the fact)

However, the DXY is also facing headwinds after a recovery from 93.93 to 97.20 over the same period as the CRB's decline.  Much will now depend on the US election results.

US Mid-terms - Election Night Live Coverage

The Aussie has been able to perform due to that shake out of dollar longs last when the DXY registered the biggest one-day drop since January. However, on a relief rally, the Aussie could come under renewed pressure even if President Trump's Republican party loses control of the House of Representatives to the Democrats - A sell the rumour buy the fact scenario could play out as the market expecting such a result turns back to a good old fashioned central bank and interest rate differential trade which continues to favour the greenback - Especially when considering that trade wars are still very much a factor that will continue to weigh on investor sentiment and the commodity complex as a whole, of which the Aussie is positively correlated to. 

AUD/USD levels

Analysts at Commerzbank noted that AUD/USD is consolidating just below the top of the 0.7244 2018 channel:

"While capped here this will leave the market under overall pressure. However the risk has increased that we will see a close above here and we favour a break higher. Why? We are looking for reversal for a number of reasons - we have TD support at .6995 and the large divergence of the daily and weekly RSI. A close above the channel would be required to negate downside pressure and trigger a move to the 0.7474 9th July high on the way to the 200-day ma at 0.7482."