Australian Dollar, AUD/USD, Chinese Industrial Profits, Covid - Talking Points
- Australian Dollar gains as Wall Street trading signals risk-on move
- Chinese industrial profits may help drive Aussie Dollar strength
- AUD/USD aims higher this week despite steep monthly rout
Tuesday’s Asia-Pacific Outlook
The risk-sensitive Australian Dollar strengthened overnight versus the US Dollar as Wall Street stocks gained in New York. The Dow Jones Industrial Average (DJIA) rose 0.24% on Monday, closing at a fresh record high. US equity traders have been encouraged by a strong corporate earning’s season. Treasury yields ticked higher across most tenures, with the benchmark 10-year note’s rate gaining over 1%.
South Korea’s second-quarter GDP print kicked off today’s trading session. The major Asian economy reported a 5.9% year-over-year increase, its highest growth rate in over 10 years. That bodes well for the region overall, but a new wave of lockdowns is weighing on expectations. Strict social-distancing measures are being expanded outside of Seoul as cases continue to surge.
Meanwhile, the situation in Australia is improving, with South Australia and Victoria set to remove heightened restrictions on Wednesday. New South Wales is likely to extend its current round of lockdowns beyond July 30, the current tentative target, due to increasing daily case counts. The measures are weighing on economic growth prospects and have sparked calls for the federal government to renew support programs. RBA Deputy Governor Guy Debelle will speak today.
Chinese industrial profits for June will cross the wires later today. Rising commodity prices have pressured margins across many industrial firms while helping others. In recent months, the Chinese government took action to target rising prices, including releasing state reserves, but strong ongoing global demand has underpinned prices. A pickup in profits may fuel some upside in the Australian Dollar, given the currency’s underlying economic link with China.
China’s recent regulatory actions sent shares in Hong Kong crashing. The Hang Seng Index (HSI) dropped over 4% on Monday while dragging down mainland-listed shares as well. Chinese regulators announced a rule over the weekend that severely limits the way education firms can raise capital. The move is part of a broader crackdown by Beijing.
AUD/USD Technical Outlook:
The Australian Dollar is tracking higher versus the Greenback so far this week, although AUD/USD is firmly lower on the month. AUD/USD will need to break above its September high at 0.7413 before aiming higher. The falling 26-day Exponential Moving Average (EMA) may pressure prices in the near term. Still, MACD crossed above its signal line, a bullish signal in the oscillator. A move lower would put the July 2021 low at 0.7289 back in focus.
AUD/USD Daily Chart
Chart created with TradingView
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--- Written by Thomas Westwater, Analyst for DailyFX.com
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