Australian Dollar, AUD/USD, RBA, China, Covid, Ukraine, Bull Flag – Talking Points
- Asia-Pacific traders eye Ukraine, China lockdowns, central banks to kick off the week
- RBA policy meeting in focus as traders try to zero in on when rates will begin to rise
- AUD/USD prices may target the October 2021 high if Flag pattern resistance breaks
Monday’s Asia-Pacific Outlook
Asia-Pacific markets will kick off the week with a focus on tomorrow’s interest rate decision out of Australia. The Reserve Bank of Australia (RBA) is expected to hold rates steady at 0.1%, but expectations for a hike in the second half of the year have strengthened in recent weeks. Those expectations have seen the yield on Australia’s 10-year bond climb nearly 100 basis points in just four weeks. It is currently trading just below 3.0%, the highest level since May 2018.
Although analysts remain split on when the RBA’s first rate hike in more than a decade will take place, the majority see liftoff occurring at the June, July or August meeting. The Australian Dollar has taken advantage of these hawkish perceptions, with the currency moving higher versus its major peers through March. However, the 2022 Australian federal election set to take place in May adds a layer of complexity to predicting a rate hike. RBA Governor Lowe may prefer to keep rate steady so close to an election.
This morning, the Melbourne Institute inflation gauge for March will cross the wires, followed by a final reading on February retail sales and March job advertisements from ANZ Bank. A solid showing in those data prints may help to strengthen the Aussie Dollar. Later today, India will report manufacturing PMI data for March, and Thailand will report business confidence for the same period.
Crude oil prices will likely remain under close observation as the conflict in Ukraine rages as war crime accusations grow. The current Covid outbreak in China has locked down Shanghai – a major financial hub – and cases are still rising despite the restrictions. Extended lockdowns may begin to exact a toll on China’s stock market, particularly at a time when the rest of the world continues to roll back restrictions. Demand-sensitive oil prices treaded lower alongside last week’s news of a supply release from US strategic reserves.
AUD/USD Technical Forecast:
AUD/USD consolidated last week following several weekly gains. That movement has created a Bull Flag pattern, which may precede further gains. A break above flag resistance could see prices climb to fresh 2022 highs. The October 2021 top at 0.7556 may act as resistance. Alternatively, a break below Flag support could see the 78.6% Fibonacci level at 0.7430 come into focus. The 61.8% Fib at 0.7331 follows.
AUD/USD 8-Hour Chart
Chart created with TradingView
— Written by Thomas Westwater, Analyst for DailyFX.com
To contact Thomas, use the comments section below or @FxWestwater on Twitter
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