AUD/USD rises as US-China trade war fears recede

The Australian dollar has been among the strongest of currencies out there today, helped along by a rally in base metal prices.

The Australian dollar has been among the strongest of currencies out there today, helped along by a rally in base metal prices. The commodity currency rose in what started out to be a "risk on" day for the markets with global stock indices rising sharply after the US and China backed down from a full-on trade war at the weekend. With China being Australia’s largest trading partner, any positive development for the world’s second largest economy is thus positive for Australia’s export. However, the Italian stock and bond market sell-off held back risk sensitive assets a little, although it wasn’t enough to stop the UK’s FTSE 100 from hitting new all-time highs today. But in the US, the stock markets couldn’t sustain the early rally although the indices were still in the positive territory at the time of writing. Meanwhile the US dollar gave back its earlier gains as the slight risk-off tone in the second half of today’s session supported the likes of the euro, Swiss franc and Japanese yen. Even gold managed to catch a small bid.

As a result of a slightly soft US dollar and strong Australian dollar, the AUD/USD was able to climb back to 0.7560 resistance, where it was trading at the time of this writing. This currency pair may have already formed a false break reversal pattern given that the sellers have struggled to hold it below the key 0.75 handle after several attempts. As well as a psychologically-important level, this level marks the previous swing low from December. Consequently, the AUD/USD has not only turned positive on the day and week, but it has done so on the monthly time frame as well (see the inset). Now that the AUD/USD is above the monthly opening price and around a technically important level, we may get some range expansion to the upside, particularly if short-term resistance at 0.7560 breaks and price holds above it. If so, there’s not much further resistance seen until the point of origin of the last breakdown at 0.7655, a level which may now turn into resistance. This bullish outlook will probably become invalid in the event the AUD/USD now goes back below 0.7500 on a daily closing basis. If that were to happen, then one has to question the validity of that false breakdown pattern.


Join our live webinars for the latest analysis and trading ideas. Register now

GAIN Capital UK Limited (trading as “City Index”) is an execution-only service provider. This material, whether or not it states any opinions, is for general information purposes only and it does not take into account your personal circumstances or objectives. This material has been prepared using the thoughts and opinions of the author and these may change. However, City Index does not plan to provide further updates to any material once published and it is not under any obligation to keep this material up to date. This material is short term in nature and may only relate to facts and circumstances existing at a specific time or day. Nothing in this material is (or should be considered to be) financial, investment, legal, tax or other advice and no reliance should be placed on it.

No opinion given in this material constitutes a recommendation by City Index or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although City Index is not specifically prevented from dealing before providing this material, City Index does not seek to take advantage of the material prior to its dissemination. This material is not intended for distribution to, or use by, any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.

For further details see our full non-independent research disclaimer and quarterly summary.