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AUD/USD, USD/CHF: Aussie sinks, Swissy swims despite higher US interest rates

Article By: ,  Market Analyst
October 28, 2024 10:05 PM
  • AUD/USD closes at multi-month lows as US yields hit multi-month highs
  • USD/CHF delivers key bearish reversal signal, pointing to downside risks

Overview

AUD/USD continues to wallow at multi-month lows, hindered by the relentless rise in US Treasury yields and disappointment towards China's latest stimulus measures. However, USD/CHF has managed to break the stranglehold of higher US rates, delivering a notable sell signal to start the trading week.

Market drivers for AUD, CHF

The chart below looks at the rolling 20-day correlation between AUD/USD on the left and USD/CHF on the right. The top three panes are identical being end-2025 Fed rate cut pricing based on futures in black with two and 10-year US Treasury yields in blue and red respectively.

For AUD/USD, the green line represents USD/CNH daily movements with COMEX copper futures in purple. For USD/CHF, EUR/USD and USD/NOK are shown in green and purple respectively.

It’s obvious that over the past month that AUD/USD remains a proxy for the US rates outlook and China sentiment, whereas the vice-like grip US rates had on USD/CHF previously has weakened noticeably.

Source: TradingView

AUD/USD nears key support

Source: TradingView

AUD/USD fell to the lowest level since August 15 on Monday, continuing to trend lower as US Treasury yields pushed higher. The latest move has seen the pair move to within touching distance of .6569, a level that acted as both support and resistance earlier this year. That’s the first downside reference level for traders pondering potential setups. If that level were to give way, focus will then turn to a potential retest of long-running uptrend support that was established during the initial pandemic plunge of early 2020.

On the topside, minor resistance is located at .6615 with the 200-day moving average located nearby at .6629. A reversal through those levels would open the door for a potential push towards .6660 and .6692, both minor level that acted as support and resistance earlier this month.

For now, RSI (14) and MACD continue to provide bearish signals on price momentum, making the inclination to continue selling rallies and breaks rather than attempting to buy dips.

While obvious the Aussie remains a play on the US interest rate outlook and sentiment towards China based on the correlation analysis above, traders are reminded Australia’s key Q3 consumer price inflation report is released on Wednesday. This report is realistically the only domestic release left this year that could meaningfully shift RBA rate cut pricing, placing increased emphasis on the detail.

A comprehensive preview will be released Tuesday afternoon in Asia.

USD/CHF goes its own way

USD/CHF was essentially a play on the US rate outlook up until recently. However, over the past fortnight the correlation with US yields has weakened noticeably, replaced by tighter relationships with other European currencies against the dollar.

You can see the shift visually in the price action with the USD/CHF rally stalling despite the continued lift in Treasury yields. That suggests traders may want to put more weight on price signals that US interest rate movements when assessing potential USD/CHF setups.

USD/CHF delivered a key bearish reversal on Monday, rejected again at uptrend resistance dating back to early October. The price has now broken out of the rising wedge it was trading in over recent weeks. With RSI (14) trending marginally lower and MACD on the cusp of confirming the bearish momentum signal, selling rallies is preferred to buying dips.

On the downside, levels to watch include .8617 and .8530, the latter the intersection of former horizontal resistance and the 50-day moving average.

Above, a push beyond .8700 would void the bearish bias, opening the door for a run towards .8730 which provided support and resistance on numerus occasions earlier this year.

-- Written by David Scutt

Follow David on Twitter @scutty

 

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