AUD/USD traders kick off the week as new China lockdowns weigh against economic data

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The Chinese city of Shanghai, a major economic hub, enters a nine-day lockdown Monday and AUD/USD bulls may take a breather as momentum oscillators show waning upward drive

Source: Bloomberg

 

Forex Indices Australian dollar AUD/USD United States dollar Japanese yen

 

Monday’s Asia-Pacific outlook

Asia-Pacific markets may see a mixed open to kick off the trading week. The Japanese yen has plummeted versus most of its peer currencies. USD/JPY rose to its highest level since 2015. The falling Yen helped propel Japan’s Nikkei 225 index higher. The weaker currency provides a tailwind for Japanese exports, which helps explain the upside in local shares. Chinese equity markets underperformed in the Asian region, with the tech-heavy CSI 300 index dropping over 2%. Later in the week, the United States will report its non-farm payrolls report (NFP) for March, which may impact broader market sentiment.

The risk-sensitive Australian dollar rose versus the US dollar as traders ditched Australian government bonds, pushing yields higher. The ten-year Australian note’s yield rose to the highest since May 2018. This may pressure the Reserve Bank of Australia (RBA) to lift the target cash rate later this year, in line with market expectations. RBA Governor Philip Lowe has pivoted somewhat toward fulfilling those market expectations over recent months but has not as yet committed to a rate hike this year.

China’s National Bureau of Statistics (NBS) reported a rise in China’s industrial profits to start the week’s economic docket. Profits grew at a 5.0% year-over-year pace for the January-February period, up from 4.2% y/y in December. The rise in profits came on the back of surging commodity and raw material prices. The upbeat data is in line with retail sales and fixed-asset investment for the same period. That may help underpin the Australian dollar and the Chinese yuan.

However, China’s Covid outbreak is worsening, and several cities are reportedly entering lockdowns under the country’s 'Covid Zero' policy. Shanghai, a key Asian financial hub, will enter a nine-day lockdown today after daily Covid cases hit a record high. Public officials announced a suspension of all factory activity and told non-essential workers to work from home. This news is likely to overshadow the positive headline on the data front, given Shanghai’s importance to global manufacturing and supply chains.

AUD/USD technical forecast

AUD/USD is slightly lower in the early APAC hours, trading just below last week’s high, which marked the highest level traded at since October 2021. While the prevailing trend may continue and push prices up to test that October high, the Relative Strength Index (RSI) and MACD oscillators are both showing that momentum is waning. A drop to the 78.6% Fibonacci retracement level may be on the cards.

However, a drop may be short-lived, with the 50-day Simple Moving Average (SMA) aiming for a cross above the 200-day SMA. That would generate a high-profile Golden Cross, a bullish signal that may reignite buying in the currency pair.

AUD/USD daily chart

Source: TradingView

Follow Thomas Westwater on Twitter @FxWestwater

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Thomas Westwater | Analyst, DailyFX, New York City
28 March 2022