AUD/USD, EUR/AUD: The Australian dollar trading poorly despite macro tailwinds

China announced more stimulus measures, riskier assets are rallying, Asian currencies are bid and New Zealand’s inflation report showed sticky domestic price pressures
The Australian dollar would normally rally in this type of backdrop but didn’t on Wednesday
EUR and USD are looking firm against the AUD

The Australian dollar was given every excuse to rally on Wednesday and didn’t, finishing the session lower than where it started. China announced a swathe of easing measures, following through on speculation that had been bubbling away for months. Other Asian currencies strengthened, led by hawkish BOJ bets bolstering the Japanese yen, while New Zealand reported continued heat in domestic inflationary pressures in the December quarter, an outcome that may have implications for Australia when its inflation report card is released on Wednesday next week.

When you consider we’re likely to be bombarded by headline after headline telling us consumer price inflation in the United States has returned to the Federal Reserve’s 2% target on a three and six-month annualised basis, unless we see a big upside surprise in either the quarterly or monthly prints, the Aussie dollar was given an open invitation for upside and failed to take it.

Telling. While a late reversal in the Japanese yen and Chinese yuan likely contributed to the Aussie’s spluttering performance, reacting to a bounce in US 2-year Treasury note yields which weighed on US equities into the close, it was a disappointing performance given the tailwinds received. Today, the performance of Chinese equities and USD/CNH may be influential on how the AUD fares.

AUD/USD rejected again above .6600

You can see technical factors may have contributed to the Aussie’s performance, running into sellers above .6612 for the third time this week. The latest rejection also occurred at the intersection of downtrend resistance running from the highs struck in late December. While MACD and RSI suggest upside momentum remains intact, both appear at risk of rolling over. Price may well follow suit if the market can’t get excited about the positives the Aussie has received. As such, risks may be skewed to the downside near-term.

For those considering a short, should we see another push towards and failure at downtrend resistance located just below .6600, it will provide an opportunity to initiate a trade targeting a move back towards support at .6520. A stop above .6612 would offer protection against reversal.

EUR/AUD bounces from support cluster

Similar to the price action against the USD, AUD has struggled against the EUR recently with EUR/AUD rebounding on Thursday after numerous failed attempts below 1.6500, the location of the 200-day moving average on the daily charts. Zooming in marginally, EUR/AUD continues to respect uptrend support dating back to the start of the year, suggesting the path of least resistance may be higher in the near-term. With MACD crossing over from below and RSI breaking it’s downtrend, it bolsters the case for upside.

A pullback and failure to break the uptrend will provide the opportunity to initiate long trades targeting a retest of long-running downtrend resistance currently located around 1.6665. In between, there may be some resistance located at 1.6600. A stop below 1.6490 would offer protection against a reversal.

On the macro front, the ECB will announce its first interest rate decision of 2024 later Thursday, followed by a press conference with President Christine Lagarde. While this carries significant event risk, having heard from so many ECB members last week, and with little fresh information received since then, it’s questionable just how much it will influence markets on this occasion.

-- Written by David Scutt

Follow David on Twitter @scutty

How to trade with City Index

You can trade with City Index by following these four easy steps:

Open an account, or log in if you’re already a customer

• Open an account in the UK
• Open an account in Australia
• Open an account in Singapore
Search for the market you want to trade in our award-winning platform
Choose your position and size, and your stop and limit levels
Place the trade

This report is intended for general circulation only. It should not be construed as a recommendation, or an offer (or solicitation of an offer) to buy or sell any financial products. The information provided does not take into account your specific investment objectives, financial situation or particular needs. Before you act on any recommendation that may be contained in this report, independent advice ought to be sought from a financial adviser regarding the suitability of the investment product, taking into account your specific investment objectives, financial situation or particular needs.

StoneX Financial Pte. Ltd., may distribute reports produced by its respective foreign entities or affiliates within the StoneX group of companies or third parties pursuant to an arrangement under Regulation 32C of the Financial Advisers Regulations. Where the report is distributed to a person in Singapore who is not an accredited investor, expert investor or an institutional investor (as defined in the Securities Futures Act), StoneX Financial Pte. Ltd. accepts legal responsibility to such persons for the contents of the report only to the extent required by law. Singapore recipients should contact StoneX Financial Pte. Ltd. at 6826 9988 for matters arising from, or in connection with the report.

In the case of all other recipients of this report, to the extent permitted by applicable laws and regulations neither StoneX Financial Pte. Ltd. nor its associated companies will be responsible or liable for any loss or damage incurred arising out of, or in connection with, any use of the information contained in this report and all such liability is hereby expressly disclaimed. No representation or warranty is made, express or implied, that the content of this report is complete or accurate.

StoneX Financial Pte. Ltd. is not under any obligation to update this report.

Trading CFDs and FX on margin carries a high level of risk that may not be suitable for some investors. Consider your investment objectives, level of experience, financial resources, risk appetite and other relevant circumstances carefully. The possibility exists that you could lose some or all of your investments, including your initial deposits. If in doubt, please seek independent expert advice. Visit www.cityindex.com/en-sg/terms-and-policies for the complete Risk Disclosure Statement.

ALL TRADING INVOLVES RISKS. LOSSES CAN EXCEED DEPOSITS.

City Index is a trading name of StoneX Financial Pte. Ltd. (“SFP”) for the offering of dealing services in Contracts for Differences (“CFD”). SFP holds a Capital Markets Services Licence issued by the Monetary Authority of Singapore for Dealing in Exchange-Traded Derivatives Contracts, Over-the-Counter Derivatives Contracts, and Spot Foreign Exchange Contracts for the Purposes of Leveraged Foreign Exchange Trading. SFP is also both Derivatives Trading and Clearing member of the Singapore Exchange (“SGX”). SFP is a wholly-owned subsidiary of StoneX Group Inc.

The information provided herein is intended for general circulation. It does not take into account the specific investment objectives, financial situation or particular needs of any particular person. You should take into account your specific investment objectives, financial situation or particular needs before making a commitment to invest, including seeking advice from an independent financial adviser regarding the suitability of the investment, under a separate engagement, as you deem fit. No representation or warranty is given as to the accuracy or completeness of this information. Consequently, any person acting on it does so entirely at their own risk.

The information does not represent an offer of, or solicitation for, a transaction in any investment product. Any views and opinions expressed may be changed without an update. To understand the risks and costs involved, please visit the section captioned “Important Information” and the “Risk Disclosure Statement”.

The information herein is not directed to, or intended for distribution to or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction where such distribution, publication, availability or use would be contrary to law or regulation.

StoneX Financial Pte. Ltd. 1 Raffles Place, #18-61, One Raffles Place Tower 2, Singapore 048616. Tel: 6309 1000. Co. Reg. No.: 201130598R.

This advertisement has not been reviewed by the Monetary Authority of Singapore.