Australian Dollar, Japanese Yen, Asia-Pacific Stock Markets – TALKING POINTS
- Australian Dollar could extend decline vs US Dollar counterpart
- Bearish price action may be amplified after Chinese data reports
- AUD/USD selloff may accelerate after failing to clear resistance
US equity markets ended the week on a happy note, with the Dow Jones, S&P 500 and Nasdaq indices closing 1.90, 1.31 and 1.01 percent higher, respectively. The subcomponent in the industrial-tied Dow Jones index with the most gains was aerospace and defense. These cycle-sensitive classifications were given a tailwind from reports of increased airline travel and a better-than-expected consumer sentiment report in the US.
The optimistic dynamism in equities was also reflected in foreign exchange markets. The anti-risk Japanese Yen, US Dollar and Swiss Franc closed in the red while the cycle-sensitive Canadian, Australian and New Zealand Dollars were in green pastures. This came despite warnings from Fed Chairman Jerome Powell of significant vulnerabilities in the financial sector amid the coronavirus pandemic.
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Monday’s Asia-Pacific Trading Session
Price action heading into Asia’s Monday trading session suggests the week may start off on a sour note, leaving the growth-oriented AUD and its commodity-linked peers vulnerable. Conversely, the anti-risk Japanese Yen and US Dollar may reclaim some of their lost ground if market conditions put a premium on liquidity over returns.
Chinese industrial and retail sales data for May could amplify this risk-off dynamic and put additional pressure on AUD. Analysts anticipate industrial production on a year-on-year basis YTD to show a -3.0 percent contraction with retail sales over the same period at -13.5 percent. Weak signs of growth out of China – Australia’s largest trading partner – may undercut AUD strength and accelerate AUD/USD’s selloff.
AUD/USD Technical Outlook
AUD/USD’s rejection and subsequent capitulation under early-January resistance at 0.7018 may continue to inspire sellers to enter the market and drag the pair lower. AUD/USD may experience some downside friction at a familiar stalling point at 0.6642. If that level’s integrity is put into question, it could pressure AUD/USD further and accelerate the pair’s retreat.
AUD/USD – Daily Chart
AUD/USD chart created using TradingView
— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com
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