AUD steady, but Evergrande lurks

Kenny Fisher MarketPulse

The Australian dollar is in calm waters in the Monday session. Currently, AUD/USD is trading at 0.7264, up 0.14% on the day.

Evergrande fears ease, for now

The Evergrande crisis has shaken investor risk sentiment, which has had a strong impact on risk currencies like the Australian dollar. It is unclear what Chinese authorities have in mind for the property giant. The options range from default to bailout or restructuring the company into smaller parts. What is clear is that Evergrande is in massive trouble and missed a coupon payment last week, with another payment due this week. The markets were willing to overlook the missed payment, but news on Friday that Evergrande’s electric vehicle subsidiary was facing severe liquidity problems spooked investors and sent the Aussie lower. If there is more bad news from Evergrande, the weak Australian dollar could lose more ground. The currency hasn’t managed a winning month since May, as ongoing lockdowns have hurt economic growth.

Concerns that the economy will record negative growth in the third quarter could increase after Retail Sales for August is released on Tuesday. The forecasts range from -1.5% to -4.0%, with the Australian Bureau of Statistics projecting a decline of 2.0%. Retail Sales accounts for some 60% of domestic growth, and the release could signal a dismal September GDP reading. Negative readings from retail sales or GDP will likely sour sentiment towards the Australian dollar.

The US also releases third-quarter GDP later this week, but the forecast is much more positive, with a forecast of 6.6%. This would be a repeat of growth in Q2 and would signal that the recovery is continuing at a brisk clip. A strong GDP release will increase expectations that the Federal Reserve will hit the taper button by December, which could give the US dollar a boost.

AUD/USD technical

There is resistance at 0.7311, followed by 0.7362.
On the downside, there is support at weak support at 0.7215. Below, there is support at 0.7170.

Author

Kenny Fisher

MarketPulse

A highly experienced financial market analyst with a focus on fundamental analysis, Kenneth Fisher’s daily commentary covers a broad range of markets including forex, equities and commodities.

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