AUD, ASX 200 Weighed Down by Worsening Chinese Sentiment


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Minimal Expectations from the RBA Tomorrow as Inflation Stabilises

The RBA is expected to keep the benchmark lending rate unchanged at 4.35% in the early hours of tomorrow. The need to keep raising interest rates has eased massively as incoming inflation data shows positive signs. The Bank was forced into hiking rates as recently as November after inflation data headed in the wrong direction.

Markets anticipate the RBA will have cut interest rates by September but this could happen as early as June (49% chance) according to the market implied probability.

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AUD/USD Under Pressure Post-NFP

The Aussie dollar appears to have made further strides to the downside after the US job market surprised to the upside with momentum too. Not only did the January numbers surprise to the upside but the December figure saw a substantial upward revision too, suggesting that the January built on existing momentum in employment.

At DailyFX, we have been tracking AUD/USD in the leadup to the trendline breakdown. Since then, a bear flag has emerged around the 200-day simple moving average (SMA) and has subsequently witnessed confirmation with Friday’s large move to the downside.

Price action currently tests a narrow range of support, prior resistance between August and November last year, before 0.6460 may come into view. This week, apart from the RBA decision tomorrow, provides very little scheduled event risk. Therefore, be cognicent of the possibility of further USD upside as markets will have time to dwell on NFP data. ISM services PMI in the US poses a potential boost for USD if the final data print confirms the sector remains in expansion – which can weigh on AUD/USD.

AUD/USD Daily Chart

Source: TradingView, prepared by Richard Snow

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ASX Pulls Back From All-Time High After China Rout

The local Australian index (ASX 200) retreated from Friday’s new all-time high but remains above the prior high of 7641. Negative sentiment from neighbouring China witnessed a daily selloff in Australian stocks which reached an all-time high on Friday after extremely robust jobs data in the US strengthened the US dollar, weighing on the Aussie dollar. Over the weekend the Chinese securities regulator vowed to prevent abnormal market fluctuations without any further details. Ill-intentioned short selling is something that continues to be monitored as the regulator has banned short selling previously. Nearly two weeks ago, the regulator restricted security lending – a decision with the purpose of reducing short selling, hoping to halt the decline in the local stock market.

However, the uptrend has been consistent up until recently, rising with momentum since the swing low last month. Signs of fatigue have appears around the new all-time high, evidenced by the extended upper wicks on the daily candles. A daily close below 7645 is the first challenge for bears to overcome. Thereafter, an approach all the way down to the January swing low would be the next major level of interest for index traders. Keep in mind, bulls may not roll over that easily. Should a close below 7641 materialise, it will be important to remain nimble as there could still be a retest of the new high before bulls potentially throw in the towel.

In the absence of further selling, the uptrend remains intact, meaning the all-time high remains a key level of interest for ASX 200 bull.s

ASX 200 Daily Chart

Source: TradingView, prepared by Richard Snow

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