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AUD/USD: Risks weighing on the downside and price extends 35-month low

  • AUD/USD kicked off the New Year extending the downside, hitting weekly S2 and remains below a bearish channel resistance on the short-term charts as well as a 0.7016 resistance level. 
  • AUD/USD suffers on risk aversion and has been sent down to a 35-month low as risk aversion bites. 

AUD/USD has been offered into the New Year, continuing within the longer term and shorter term bearish channels which are taking on a 35-month low as risk aversion bites. There has been some stability with US stocks finding some temporary traction at this juncture, with the price correcting from 0.6982 to 0.7011 recent highs. 

Negative factors weighing in the near term

The ongoing US government shutdown adds a cautious note or the start of the year, weighing on sentiment ahead of the new session of Congress is set to begin tomorrow. Additionally, the pair is being weighed by the data front, China's weaker than expected Caixin PMI sets a softer tone for EM assets for the rest of the week. Also, Australian house prices dropped by -1.3% m/m in Dec (more than expected). "Weakness continues to be concentrated in large cities, with the biggest decline in Sydney (-1.8% m/m). Sydney prices have dropped -8.9% y/y while prices in Melbourne have fallen -7.0% y/y," analysts at TD Securities explained.

Meanwhile, the next key data will come up at the end of this week in the form of the US employment report. Analysts at ING Bank explained that growth is slowing, but this is more to do with a lack of available workers rather than a drop in demand. "The implication is wages will keep rising, supporting confidence and spending."

"Financial markets are somewhat nervous about the US’ economic prospects. For certain, there are more headwinds for growth, including the lagged effects of higher interest rates, the strong dollar, fading fiscal support and trade protection worries at a time of already slowing global growth. However, the bigger risk for the US jobs report in the next few months is actually its strength – there aren’t enough available workers that have the skills employers require."

AUD/USD levels

Analysts at Commerzbank explained that AUD/USD has sold off although note divergence on the daily and weekly RSI, and a TD perfected set up on the daily chart and a 13 count on the weekly chart – all of which suggests the end of the down move for now. TD support lies at 0.6995. "Rallies will find initial resistance at the 55-day ma at 0.7177 and will need to regain the September and early November highs at 0.7302/14 to reassert upside interest to the 200-day ma at 0.7349."

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