US DOLLAR, CRUDE OIL, AUD/USD, RBA, PBOC, RBNZ - TALKING POINTS:

• USD rallied as equities came under pressure amid a tech rout.
• RBA delivered as expected, RBNZ ahead may not be clear cut.
• Energy in hot demand. What does it mean for USD from here?

The US Dollar gained ground against all the majors on safe-haven buying. The commodity currencies – AUD, CAD, NOK and NZD – lost more ground than others as risk-off sentiment permeated markets.

Crude oil maintained levels close to 7-year highs in Asia as further energy concerns emerge. India is the latest country to report rolling blackouts on coal shortages. OPEC+ stuck to the plan of adding 400,000 barrels per day of production at a meeting yesterday. Markets were hoping for more, leading to a squeeze higher.

The US session saw Nasdaq 2.1% lower, giving Asian markets a soft lead. APAC equities were mostly lower, with Japan’s Nikkei 225 and South Korea’s Kosdaq both down over 3.5% at one stage.

Mainland China remains on holiday and Hong Kong markets that were open were mostly steady, except for the tech sector. This is despite another property company, Fantasia, making an announcement that they have been unable to pay back a bond due this week.

Liquidity issues appear to be growing for the Chinese property sector amid concerns about securing energy supply. As a result, there has been speculation of a possible cut in the reserve ratio requirement (RRR) by the PBOC when they return from holidays next week.

AUD/USD was slightly lower after the monthly RBA meeting. Monetary policy was unchanged, with the cash rate and 3-year bond rate targets left at 0.10%. The central bank also kept the amount of government asset purchases to a rate of AUD 4 billion a week at least until mid-February 2022. Earlier, Australia’s trade surplus for August came in at AUD 15.1 billion, well above the AUD 10 billion the market had anticipated.

Looking ahead, the US will see trade, PMI and ISM numbers released. Tomorrow, the RBNZ will deliberate on a rate hike that was previously widely anticipated but recently questioned as Covid-19 numbers ticked up.

US DOLLAR (DXY) TECHNICAL ANALYSIS

The US Dollar index (DXY) is within an ascending trend channel since making a low in May. The recent high of 94.503 and a high from September last year at 94.742 could offer resistance.

A previous resistance level at 93.729 is now a pivot point and may provide support. The ascending trend line, currently intersecting at 92.75, and the previous low at 91.947 are also potential support levels.

Chart created in TradingView

Written by Daniel McCarthy, Strategist for DailyFX.com. 5th October 2021