AUD/USD, APAC Stocks May Rise. Will Geopolitics Undercut Gains?

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Australian Dollar, US Dollar, US Equity Markets – TALKING POINTS

  • Australian Dollar’s rise with equities on Wall Street may echo into Asia-Pacific markets
  • Investor’s buoyancy could be interrupted by resurgence in regional geopolitical strains
  • AUD/USD rejected at key resistance again – will capitulation inspire bearish sentiment?

Wall Street traded started the week off on an upbeat note with the Dow Jones, S&P 500 and Nasdaq indices ending the day 0.59, 0.65, and 1.11 percent higher, respectively. Foreign exchange markets also reflected a risk-on tilt with the Australian and New Zealand Dollars closing in some cases over 1.1 percent against some of their G10 counterparts.

Meanwhile, the anti-risk Japanese Yen and US Dollar were punished in an environment that favored returns over liquidity. Crude oil prices clocked in gains just a hair over 3.20 percent with gold just under one percent. Corporate credit markets for investment-grade debt showed signs of easing with the spread of credit defaults swaps having narrowed a little over 2 basis points.

Tuesday’s Asia-Pacific Trading Session

With a relatively light data docket, Asia-Pacific markets will likely place their focus on macro-fundamental narratives like the coronavirus and developments in regional geopolitics. The situation between China and India continues to be a point of uncertainty. In the current situation, an escalation of tensions between two nuclear powers during economically-fragile times could amplify the cross-border effect of the conflict.

In that scenario, risk-oriented assets like equities, NZD, AUD and emerging market currencies would likely be vulnerable to higher rates of liquidation. Conversely, the haven-linked Greenback and Japanese Yen may rise amid the uncertainty. Barring these developments, Asia-Pacific trade may echo Wall Street’s rosy session and help extend the Australian Dollar’s rise and continue to pressure USD and JPY.

AUD/USD Technical Analysis

AUD/USD was rejected at the lower tier of a technically-significant resistance range between 0.6911 and 0.7018. Its failure to crack that ceiling could signal a lack of confidence and may in turn inspire sellers to enter the market. A pullback could see the pair retest a familiar point of friction at 0.6642, and if that floor cracks, the basement at 0.6528 may be exposed.

AUD/USD – Daily Chart

Chart showing AUD/USD

AUD/USD chart created using TradingView

--- Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter