AUD/USD May Rebound as Chinese Lockdowns Ease Ahead of FOMC, BoJ

AUSTRALIAN DOLLAR, AUD/USD, CHINA, COVID, COMMODITIES, TECHNICAL OUTLOOK – TALKING POINTS

  • Asia-Pacific markets look to gauge market sentiment ahead of an event-heavy week
  • Covid lockdowns across China begin to ease, likely providing a boost to metals
  • AUD/USD may rebound this week, but outlook remains bearish on a technical basis

Monday’s Asia-Pacific Outlooks

Asia-Pacific markets may open mixed as traders take a cautious stance after last week’s risk-off bout that sent global equity markets lower and the safe-haven US Dollar higher. The US central bank’s rate decision on Wednesday will drive market sentiment. Traders are waiting to see if the Federal Reserve delivers a 75-basis point rate hike or a 100-bps hike. An updated Summary of Economic Projections (SEP) is also due.

Although the economic docket for today’s APAC session is light, today’s direction is likely to set the tone going into Wednesday’s FOMC. The Bank of England and Bank of Japan are also due to update their policy rates, which may inject additional volatility into the foreign exchange markets. The BoE is expected to hike its benchmark rate to 2.25% from 1.75%, while the BoJ is seen keeping its policy setting largely unchanged despite extraordinary Yen weakness.

Bitcoin and other major cryptocurrencies traded lower overnight, suggesting last week’s risk aversion remains present. A stronger US Dollar battered most commodities last week, including copper and iron ore. However, the announced reopening of China’s Chengdu, a megacity in Sichuan province, may lift industrial metals this week. The local government released a statement outlining reopening steps for public venues and other establishments.

The China-sensitive Australian Dollar may benefit from the rolling back of restrictions in China, and while China’s Covid threat remains, policymakers may be hesitant to announce major lockdowns as the country’s National Congress approaches. Hong Kong is set to release unemployment data for August at 08:30 GMT. Monday’s EU session may be light in volume as markets in the United Kingdom close for the Queen’s funeral.

AUD/USD Technical Outlook

AUD/USD fell nearly 2% last week, with prices briefly sinking to 0.6670, a fresh 2022 low. Prices have been trending lower within a defined channel range since mid-August. A relief rally may take the currency pair up to channel support, but the outlook remains bearish within the channel and below the 50-day Simple Moving Average (SMA).

AUD/USD Daily Chart

 

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Chart created with TradingView

— Written by Thomas Westwater, Analyst for DailyFX.com