AUD/USD Bulls Fall To Chinese Slowdown Fears, .7000 In Sight
Matthew Weller | Jan 06, 2016 10:21AM ET
It’s been a rough start to 2016 for China bulls and anyone else dependent upon solid growth in the world’s second-largest economy. After Monday’s Chinese stock-market washout, sentiment toward the Middle Kingdom stabilized yesterday, but that was merely the calm before today’s storm.
The panic kicked off with the daily fix of China’s currency, the renminbi. The People’s Bank of China (PBOC) set the currency’s daily reference rate at 6.5314 against the dollar, its lowest level since April 2011. This marked the seventh consecutive day of devaluation, prompting traders to wonder whether Chinese authorities are seeing signs of an imminent economic slowdown and taking actions to prepare and try to soften the blow. In everyday terms, today’s move by the PBOC is akin to seeing your local weatherman buying a generator and boarding up the windows to his house, even if he hasn’t publicly mentioned an incoming storm.
One measure of the market’s level of concern about China’s currency is the difference between the on-shore Chinese renminbi (CNY), which is influenced by the PBOC’s intervention, and the offshore Chinese renminbi (CNH), which is more influenced by market forces. This spread has spiked to 2%, it’s widest level on record:
Source: Financial Times
While the majority of traders don’t focus on trading China’s currency directly, concerns about a slowdown the world’s second-largest economy have a big influence on the region and market sentiment as a whole. Global equities are trading 1-2% lower across the board, and the carnage has predictably spread to the currencies of China-dependent economies including the Australian dollar.
Technical View: AUD/USD
As we go to press, AUD/USD is trading nearly 100 pips lower on the day, breaking its 4-month bullish trend line in the process. The secondary indicators further bolster the bearish case: the MACD has turned lower to cross below the “0” level, showing a shift to bearish momentum, while the RSI has broken its own bullish trend line.
After today’s big technical breakdown, AUD/USD bears clearly have the upper hand in the short term. To the downside, the next support levels to watch will be key psychological support at the .7000 handle, followed by the early September low near .6900. Even if we see a bounce and move back above the bearish trend line near .7120, buyers may be hesitant to jump in unless rates can clear previous resistance around .7300.
Get The News You Want
Source: FOREX.com
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.