AUD/USD: Price stabilizing following lower lows, bulls attacking 0.7150 psychological level

The US dollar has picked up a bid at the start of the week, extending last Friday's sharp rally in the DXY from 96.01 to a high of 96.39. A high of 96.43 has been made since the IMF cut its global growth forecasts on the back of increased trade tariffs between China and the United States which both weighed on the Aussie and fed flows into the greenback. Surprisingly, the Yuan has remained solid, robust on the back of a relief in the Chinese data suit where retail sales rose 8.2% y/y (mkt 8.1%, last 8.1% y/y) and industrial production rose 5.7% y/y (mkt 5.3% y/y, last 5.4% y/y) beating expectations.

However, the slight disappointments came in fixed assets investment, which rose 5.9% y/y (mkt 6.0% y/y, last 5.9% y/y). Concerningly, activity is still weak. "Retail sales ytd fell to its lowest since Nov 2003. Separately, weaker manufacturing PMIs are in contraction territory and point to weakness in IP going forward. GDP is also likely to soften further over coming quarters as trade worsens. It is unlikely that targeted stimulus does much but soften the blow," analysts at TD Securities pointed out which the commodity currencies know. 

Eyes on commodities

On the commodities front, "We're watching strong official sector gold purchases, which open up the possibility that prices can move significantly above our projected $1,400/oz+ in late 2020, should central banks catch the "gold bug," analysts at TD Securities explained, which could be a warning to risk of which the Aussie trades as a proxy. The alternative remains as the greenback, yen and CHF in terms of FX, but should the Fed become a more dominant factor, gold could go higher and the Aussie would likely be caped on the downside as the return of the inflation trade starts to kick in again and support high-beta and EM-FX, of which the Aussie also trades as a proxy. 

Meanwhile, for the day ahead, American markets stay closed due to the Marthin Luther King Jr. Day, but the show must go on with respect to geopolitics, including Brexit, The US government shutdown and trade war noise, all of which traders are paying close attention to, and again, of which the Aussie will trade as a proxy. We also look ahead to Australian jobs data this week.

"Our expected Nov seasonal pop in employment materialized, but we look for another seasonal pop of +30k for Dec, in line with recent trends and job ads pointing to 2½%/y employment growth. We are top of the range of +1 to +30k. When +30k is combined with an unchanged participation rate of 65.7%, the unemployment rate drops to 5.0%, where it has been since Sep 2018," the analysts at TD Securities explained. 

AUD/USD levels

AUD/USD is trying to stablise in recent trade, although remains smothered by negative moving averages in a bearish consolidation of the recovery flash crash rally.  "Dips lower will find minor support at 0.7125/.7065 and the 0.7022 end of October low. The market targets the September and early November highs at .7302/14 and the 200-day ma at 0.7313, where it is expected to struggle. It looks in need of consolidation following the recent spike down into 9 year lows. This price action was exhaustive – the market charted a hammer (reversal). We have a TD perfected setup on the daily chart and a 13 count on the weekly chart. This suggests the end of the down move for now," analysts at Commerzbank argued.