AUDUSD Fundamental and Technical Analysis
In today’s daily analysis we will focus on the currency pair which is being traded as the free market proxy for Chinese growth. You guessed it right – it’s the AUD/USD. As a major trading partner with a free floating currency, the Australian dollar is taking clues from Chinese growth for active trading.
The Chinese credit boom
The Chinese credit boom so far has failed to boost economic recovery in the first quarter, demonstrating that loose cash around the economy is not benefitting it in any desirable way and could instead derail inflationary expectations. A fast paced growth in credit in recent months has been driven by the ballooning shadow banking sector rather than common bank lending, raising two major alarm bells. The first one is that a big chunk of the new money is being used by debt-stricken local governments to pay back existing loans rather than investment that might spur fresh economic growth.
The second problem is that shadow banking has provided a yet another lifeline for investment in the property sector, clearly an area where the government is trying to cool off growth fearing that a housing bubble bust could undermine the broader economy. These substantial risks for the Chinese economy alongside with sharp commodity prices drop at the end of last week continuing into Tuesday have driven the AUD from a star performer in the month of March to the tail of the foreign exchange market.
During the start of the Asian session the Aussie as currency traders call it, held steady at $1.0385 vs $1.0377 late on Tuesday, extending its rebound from Monday's one-month low of $1.0291. Rumoured serious bid are positioned around 1.0330, whilst 1.0340 provided initial support in late Asian session trading. We expect the topside to be capped below 1.0410, however should the price action get us past on a sustained hourly basis above 1.04 we are very likely to see some bearish bets capitulate to push the rate higher towards 1.0450-60 area as an initial target.
The bears (investors that are betting on a downward move) are in control for now and fundamentals are so far supporting their case. Binary options traders should be paying close attention to risk sentiment and commodity markets as those are the likely triggers for the next move after the Asian session close.
Looking ahead the calendar is not very heavy, yet we do have some events in the Euro Zone that could provide some impetus for the market. At 0830 GMT the Bank Of England releases their latest policy meeting minutes which will reveal the vote count for keeping policy unchanged at their last meeting on the 4th of April. Following that we have construction output data from the Euzo Zone at 0900 GMT.
Commodity markets remain jittery as gold has traded in a relatively tight range during the Asian session between 1365 and 1383. Look for fresh volatility here to be a driver for the AUD/USD pair as Australia is a major commodity exporter.