AUD/USD Grips Trendline As Shanghai Covid Fears Resurface

(MENAFN- DailyFX) Australian Dollar, AUD/USD, Covid, Oil, Food Prices, RBA Chart Pack - Talking Points

• The Australian Dollar fell against a safe-haven-boosted USD
• Crude oil prices slide alongside broader commodity downturn
• AUD/USD back at major trendline support after a big drop

Investors flocked to haven assets overnight amid a volatile trading session in New York. US stocks started the day with steep losses but rallied into the close as falling bond yields helped take pressure off valuations. The benchmark 10-year Treasury yield fell to its lowest level since May. Investors are turning bullish on bonds amid signs that inflation may have peaked, reflected by easing market bets for future Fed rate hikes.

Oil prices plummeted as recession fears picked up. Energy traders are betting that demand may have hit a peak following the busy US holiday that typically brings near-record travel numbers. The rising Dollar was another headwind for energy prices. Moreover, a new round of mass testing was launched in Shanghai, China, following reports of multiple Covid-19 cases from earlier in the week. Given the prospect of increased restrictions should cases continue to rise, it may put a dent in regional sentiment for today's session. That said, the Australian Dollar's fall versus the US Dollar may continue.

The New Zealand Dollar faces mounting headwinds as milk prices continue to slide. Milk is a major export for the Kiwi economy, making its currency vulnerable to outsized price swings in the commodity. New Zealand's global dairy trade price index recorded a 4.1% drop this morning, following a 1.3% decrease two weeks ago. The move in diary echoes the activity seen in the broader food-based commodity market, with the grain market sliding further overnight. Corn and wheat futures fell nearly 5% overnight in New York.

The Reserve Bank of Australia's chart pack is set to cross the wires today, as is typical following a rate decision. The data will be useful in analyzing the RBA's recent decision and its possible path forward, but it is likely to play second fiddle to market risk trends. News out of China regarding lockdowns is likely to pose the highest risk to traders.

• Hong Kong: S&P Global PMI (JUN)
• Australia – RBA Chart Pack
• Taiwan – Inflation Rate (JUN)

Click here to view today's full economic calendar

AUD/USD is threatening a major trendline, which could see prices slide further into early 2020 levels if broken. Bulls will look to drive price higher to hold support, with the falling 20-day Simple Moving Average (SMA) serving as potential resistance. MACD and RSI are both trending lower below their respective mid-points.

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--- Written by Thomas Westwater, Analyst for DailyFX.com

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