AUD/USD: barometer of global growth risks; more downside to follow

  • AUD/USD has been firming on the 0.71 handle although bulls have been unable to hold above the 0.7120 mark despite a deteriorating dollar on the 95 handle, down from 95.56 mark currently at 95.13, -0.22% for the day so far.
  • AUD/USD is currently trading at 0.7107, off a session low down at 0.7098 and from a high of 0.7132.

AUD/USD is capped by the 4hr-10-SMA  currently in a non-eventful session in the North American shift, buoyed by copper prices and a CRB index that pushed its way back onto the 191 handle on dollar weakness. The current environment, however, makes for vulnerability in the commodity-complex and this week will likely be key for the FX space with a number of key data to come out following last Friday's impressive jobs report. 

Some people like "Doctor Copper" as their barometer of global growth risks, but the Aussie dollar has been a remarkably prescient sage, and it is telling us that we are approaching a snapping point in the global financial system.  Doom may not be imminent or unavoidable, but the tension is tight, and is being ratcheted up. 

You don't have to be a sharp observer to see that there are problems in global financial markets, Turkish and Argentinian markets are in turmoil, among a few others, but the rapid slide in the AUD in the last month is telling us the risks are spreading to the mainstream.

The dive in the AUD on Friday last week after failing to draw strength from an impressive set of GDP numbers is a sign that we should baton down the hatches.

explained Greg Gibbs, founder, Analyst, & PM, amplifying Global FX Capital Pty Ltd an Australian financial services company in an article in The Wire: AUD/USD: a flexible proxy for the Asia region - AmpGFX

All eyes on US and China this week

PMIs/nonfarm payrolls&wages have been supportive to the greenback and now markets will turn to this week's PPI and CPI releases that are key. Higher than expected CPI will only underpin the case for higher rates from the Fed - other key U.S. data in the week ahead include the JOLTS jobs, real weekly earnings, retail sales and industrial production.

We will also see data from China's economy - We have seen the CPI and PPI; Now eyes turn to retail sales, IP and urban investment due on Friday, while credit and lending data are also due this week. The downside in China's economy and the divergence between China, the US and the majority of developed nations will underpin the greenback.

There will also be ears to the ground for updates with respect to the U.S. imposing tariffs on an additional $200 billion of imports from China. When markets start to price in the additional $267 billion that President Trump threatened on Friday, just hours before China reported another record trade surplus with the U.S, one might expect additional gains in the greenback. 

AUD/USD levels

Analysts at Commerzbank note that AUD/USD has eroded the May and December 2016 lows at 0.7161/46: 

"Following the recent demise of its long-term uptrend as well we have no choice but to go with it. The move below 0.7140 opens up the path to 0.6827 the 2016 low. We have a number of 13 counts on the 240 chart and will stand aside today. A negative bias will remain entrenched while below the 55 day ma at 0.7344."

 

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