The AUD/USD chart resembled a roller coaster on Friday. Initially the bears were in control, pushing new lows, however the bulls later gained the ascendancy in the US session helping the Aussie dollar recover from its initial losses and close the week relatively unchanged.
Earlier in the day the AUD hit fresh multi-year lows as risk-aversion swamped the markets. Equities reversed early morning gains and currencies were swept up in the carnage.
The moves caught many off-guard due to the lack of volatility throughout the week. Up until 2pm AEST on Friday the weekly range was a mere 72-points and tracking a similar weekly trade range to the week prior, which was the lowest weekly range since 2002.
However the weight of equity market turbulence took its toll, alongside a weakening Chinese yuan that touched it’s lowest level since January 2017. This saw the AUD sell-off quite suddenly, pushing through the weekly lows at 0.7052 and quickly surpassing the monthly lows at 0.7040, taking out traders stop loss positions which exemplified the moves and test towards psychological support at 0.7000.
But after the release of US 3rd quarter GDP on Friday night the US dollar sold off across the board, enabling the Aussie to bounce off the low of 0.7021 and push all the way back above 0.7100 before closing the session at 0.7087.
Whilst the headline release of 3.5% growth versus 3.3% expected was quite strong, delving into the data traders saw that a considerable portion of growth came from increased inventories whilst exports declined, and thus took the position that the number was overstated and at risk of declining at the next read, and sold their USD holdings accordingly.
Looking ahead and the economic calendar is quite a lot busier than last week. On Monday the US releases core PCE, the Fed’s preferred measure of inflation, followed by consumer confidence data on Tuesday. This leads into Australian inflation data on Wednesday which is quickly followed by Chinese manufacturing and services data. Later that night the US will publish quarterly wage price data, followed by Australian retail sales figures on Friday ahead of US employment numbers.
Given how close traders came to testing 0.7000 on Friday, any negativity in domestic data or strength in US data would likely see that figure tested again. If it does break through 0.7000 the next key level of technical support coincides with the August 2015 low at 0.6907. Thereafter and the January 2016 low of 0.6827 is the next key figure to watch. Whilst the trajectory is for a lower AUD, a break back above 0.7160 could help the Aussie recover in the short-term, although I imagine any rallies will be met by sellers who appear in control at this time. A sustained move towards 0.7300 could change this view, but the likelihood of this happening looks quite remote given current price action and most market participants still favour a lower AUD from here.
Head of FX Dealing, AFEX