AUD/USD rebound hinges on US yield stability and China market upside

• AUD/USD hinges on US yield consolidation and Chinese market recovery.
• Strong correlations with copper, WTI, and Hang Seng futures, along with US rates
• Technical picture suggest potential for a near-term rebound

Overview

A potential pause in the relentless rise of US bond yields could spare AUD/USD from further downside this week. However, sentiment toward China may ultimately decide whether the Aussie can find some upside.

It’s set to be an exceptionally quiet week for US data flow. Following the significant upward recalibration of US interest rates since the Federal Reserve began its easing cycle in September, the backdrop favours consolidation in both US bond yields and the dollar. This environment could benefit the Japanese yen in the near term, along with gold and silver, given their strong inverse correlation with US rates.

One part US rates play, one part China proxy

Source: TradingView

However, that dynamic may not extend to AUD/USD, which often serves as a China proxy rather than purely a play on US rates. While it reflects some of the US dollar's impact on commodity prices, its correlation with copper and WTI crude oil futures over the past fortnight has been remarkably strong at 0.96 and 0.85, respectively. Yet, it’s clearly more than just a US dollar story—its correlation with Hang Seng futures during the same period is an astounding 0.98.

While AUD/USD maintains an inverse relationship with US Treasury yields across the curve, the connection is weaker compared to its link with China-related variables. This suggests that any rebound in the Aussie may require not only stability in US rates but also a recovery in Chinese sentiment and markets, especially with no major Australian data due for the remainder of November.

Hang Seng: trying to bottom

Source: TradingView

Monday’s Hang Seng futures daily candle could complete a morning star pattern if it holds around these levels. Momentum indicators remain bearish, favouring selling rallies, but declining participation – evident in falling volume following last week’s bearish break – hints at waning downside momentum.

If a morning star forms, key resistance levels to watch include 19,772 and the 50-day moving average at 19,906. On the downside, Friday’s low of 19,336 serves as initial support, providing a potential location for stops beneath for those considering longs.

AUD/USD directional risks skewing higher?

Source: TradingView

Reinforcing the AUD/USD-Hang Seng link, the daily candlestick pattern in AUD/USD could also form a morning star if prices can grind towards the session highs during European and North American trade. RSI (14) has also diverged from price, signalling potential shifting directional risks and increasing the odds of a near-term bullish reversal.

Topside levels to watch include 0.6480, former downtrend support at 0.6505, and 0.6513 – a break above the latter could pave the way for an extended rally. On the downside, 0.6441 is a level to watch, offering a potential setup where longs can be established with a tight stop beneath for protection.

-- Written by David Scutt

Follow David on Twitter @scutty

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