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)

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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