Australian Dollar Falls on Return of Chinese Lockdowns Ahead of US CPI

AUSTRALIAN DOLLAR, EURO, CHINA, COVID, CPI – TALKING POINTS

  • Australian Dollar falls as risk sentiment erodes ahead of US CPI print
  • China’s “Zero-Covid” policy back in focus after President Xi’s comments
  • AUD/USD takes out June gains after losses accelerated overnight

FRIDAY’S ASIA-PACIFIC OUTLOOK

A wave of selling across risk assets during New York trading hours may cascade over into Friday’s Asia-Pacific session. Recession fears, a familiar catalyst, had traders hitting the sell button on equities and risk-sensitive currencies. The high-beta Nasdaq-100 Index (NDX) lost 2.74% on Wall Street. The Australian Dollar fell against the US Dollar.

The Euro was also a big loser, with EUR/USD dropping to its lowest level since May 23. That drop came after an initial pop following the European Central Bank’s policy decision. The ECB downgraded its growth forecasts while increasing its inflation outlook. A rate liftoff appears likely at the next meeting, although it wasn’t enough to inspire Euro bulls to step in.

Another headwind against sentiment was a move by Chinese authorities to reenact some Covid-19 restrictions. Chinese President Xi Jinping publicly called on policymakers to hold firm on the country’s “Zero-Covid” policy. At the same time, Xi aims to balance the country’s tight rules around Covid with economic growth. However, many economists forecast that China will miss its intended 5.5% growth target, largely due to lockdowns through the year.

Oil prices moved slightly lower overnight, but that didn’t help to cool record-high gasoline prices. In the United States, the national average rose to $4.97 per gallon, a record high, according to AAA. These prices are likely to fuel short-term inflation expectations. Tonight brings US inflation data via the consumer price index (CPI). This morning, New Zealand reported a 1.9% month-over-month increase in electronic retail card spending. Japan’s producer price index (PPI) is set to cross the wires later today.

AUD/USDTECHNICAL FORECAST

AUD/USD accelerated lower overnight, slicing through the 38.2% Fibonacci retracement and the 20-day Simple Moving Average (SMA). That move removed all gains on the month and put the pair in a vulnerable position. The Relative Strength Index (RSI) crossed below its mid-point, and the MACD oscillator is on track to do the same.

AUD/USD DAILY CHART

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