Oct 7 (Reuters) – The Australian dollar has recouped some of Tuesday’s 1.1% losses that were largely driven by broad USD gains amid a rise in risk aversion, but was the dip a buying opportunity or more likely, the start of a deeper decline?
The risk selloff was prompted by President Trump’s decision to end coronavirus stimulus negotiations even as Federal Reserve Chairman Powell expressed fears of the economic recovery stalling .
There is every chance that the breakdown in negotiations will take time to be fully priced in, which will increase uncertainty, and should support the safe-haven USD, while the AUD was already heavy on market expectations that the RBA may ease policy in November .
AUD/USD is closer to the top of its 0.5510-0.7413 2020 range, as is the trade-weighted index =AUD at 61.10, in a 49.90-62.90 2020 range, so the AUD is strong at these levels.
Morgan Stanley’s Oct 5 FX Position Tracker suggested AUD positioning was neutral. The combination of a resilient USD on global growth uncertainty ahead of RBA easing and neutral positioning makes the AUD/USD a sell-on-rallies. A move towards 0.7150, with stops above the October double top and 50% of the September fall at 0.7210, would be an opportunity, looking for a test and possible break of the 0.7006 September low.
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aud 2 oct 7https://tmsnrt.rs/30D6iMk
(Andrew Spencer is a Reuters market analyst. The views expressed are his own)
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.