Wednesday’s Asia-Pacific outlook

A risk-off move that intensified overnight in New York may see Asia-Pacific stocks open lower. The benchmark S&P 500 closed 0.67% lower, extending losses from Monday. US House Speaker Nancy Pelosi’s arrival in Taiwan spurred some risk aversion as investors fear the visit may increase tensions between Washington and Beijing, perhaps to the point where a military conflict is a tangible tail risk.

The geopolitical implications sent the safe-haven US dollar higher, with the USD DXY Index gaining almost a full percent during New York trading. EUR/USD fell nearly 1%, trimming gains from the past two sessions. The Japanese yen was another big loser against the Greenback. USD/JPY rose over 1%, although the cross remains sharply lower from its multi-decade July high.

The Australian dollar is the worst performer against the US dollar. The impact on AUD/USD stems from haven flows boosting the USD and a disappointing Reserve Bank of Australia rate decision that occurred yesterday. Softer iron ore prices in China are another factor likely weighing on the Aussie dollar. And of course, given Australia’s geographic positioning, Nancy Pelosi’s Taiwan visit may be posing an additional headwind.

Gold prices were another victim of USD strength. Spot gold fell more than 0.5% despite the geopolitical concerns, including announced Chinese military exercises. Crude oil and Brent oil prices surrendered early gains, trading flat shortly after the Wall Street closing bell. The American Petroleum Institute (API) posted a surprise build in crude stocks for the week ending July 29.

Australia’s Ai Group Construction Index for July fell to 45.3 from 46.2 in June. The New Zealand dollar extended losses after the island nation’s second-quarter employment figure showed a 0% q/q print for employment change. That put the unemployment rat at 3.3%, above the 3.2% in Q1. The weak jobs data may temper RBNZ rate hike bets, explaining some of the downside reaction in Kiwi dollar this morning.

Notable Events for August 03:

• Hong Kong – S&P Global PMI (July)
• Japan – Jibun Bank Composite PMI Final (July)
• Singapore – S&P Global PMI (July)
• China – Caixin Composite PMI (July)

AUD/USD technical outlook

AUD/USD pierced below its 50-day Simple Moving Average (SMA), clearing a path for further downside. The Relative Strength Index (RSI) crossed below its centerline, amplifying the bearish risk to prices. A drop to the 0.68 handle, where prices exited the Falling Wedge, may be on the table. Alternatively, recapturing the 50-day SMA would help bulls to reenergize.

AUD/USD daily chart

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