28th September 2021 - AUD/USD is trapped between support and resistance following Fed volatility.

Market Headlines

US equities were capped by further gains in bond yields, the S&P500 down 0.1%. Currencies were mixed, the US dollar unchanged. US 2yr treasury yields rose from 0.27% to 0.29%, while the 10yr yield rose from 1.45% to 1.51% - a three-month high - before settling around 1.47%. Australian 3yr government bond yields (futures) traded around 0.45%, while the 10yr yield rose from 1.42% to 1.49% - a three-month high.

Commodities, Brent crude oil futures rose 2.0% to $80 – a three-year high, copper rose 0.1%, gold rose 0.1%, and iron ore rose 8.3% to $118.

Overnight Currency Range

AUD/USD 0.7250 0.72935

EUR/USD 1.1685 1.1730

GBP/USD 1.3661 1.3728

USD/JPY 110.53 111.07

NZD/USD 0.6990 0.7032

USD/CAD 1.2610 1.2672

USD/CNH 6.4540 6.4691

AUD/JPY 80.16 80.95

AUD/NZD 1.0355 1.0392

AUD Thoughts

AUD/USD struggles to keep Monday’s rebound near 0.7300, around 0.7290 by the press time of Tuesday morning in Asia. The risk barometer pair portrays a sluggish mood in the market following an upbeat start to the week, not to forget mentioning cautious sentiment ahead of the preliminary readings of Australia Retail Sales for August.

The break to the latest AUD/USD recovery could also have taken clues from the prepared remarks of Fed Chair Jerome Powell’s testimony, up for publishing on Tuesday (the US time). Fed Chair Powell cited inflation and employment concerns while saying, “We would certainly respond and use our tools to ensure that inflation runs at levels that are consistent with our goal."

Furthermore, chatters that the Shenzhen government is investigating the wealth management unit of Evergrande and urged to repay investors seem to challenge the risk appetite and to the Aussie pair. Additionally, the US Dollar Index (DXY) also benefited from the firmer Treasury yields, underpinned by the Fed tapering concerns, as well as upbeat US Durable Goods Orders for August, 1.8% versus 0.7% forecast, to add to the upside filters for the AUD/USD. Having witnessed a roller-coaster week filled with the Fed tapering and China’s Evergrande, traders were easy, mostly positive, on Monday amid receding fears of over the Beijing-based real estate firm. Also supporting the mood could be the headlines suggesting easing covid woes as well as market optimism that the economic recovery is gaining traction.

Moving on, AUD/USD traders will need to pay close attention to the preliminary readings of Australia’s Retail Sales for August, expected -2.5% versus -2.7%. Should the Aussie data disappoint, the latest weakness in the quote and fading sentiment may join challenging technicals to recall the sellers. Bearish divergence and 200-DMA challenges the AUD/USD buyers inside the 100-pip range between 0.7320 and 0.7220. In addition to the 200-SMA level surrounding the 0.7300 threshold, an eight-day-old descending resistance line at 0.7305 adds to the upside filters before propelling the quote towards the 0.7320 hurdle.

Should the quote manages to defy the RSI divergence and crosses the 0.7320 resistance, September 10 top surrounding 0.7410 and the monthly peak near 0.7480 will be in focus. On the contrary, pullback moves will be restricted by the stated range’s support near 0.7220.

Also likely to challenge the AUD/USD bears will be the 0.7200 round figure and 0.7150 support level ahead of August month’s low, also the yearly bottom surrounding 0.7105.

Event Risk Data Today

Australia: The market anticipates a 2.5% decline in August retail sales given restrictions intensified across the major states over the period. However, basic food spend, ~40% of retail consumption, likely outperformed over the month, partially offsetting declines in covid-affected categories.

New Zealand: The employment indicator for August should show limited impact from the latest Covid lockdown.

UK: September nationwide house prices may lose momentum on stretched affordability and the tax break expiry (market f/c: 0.6%).

US: Wholesale inventories are due for a rebuild, however supply constraints are a headwind (market f/c: 0.8%). The July S&P/CS home price index is expected to see a further acceleration in annual price growth to around 20.0%yr. Delta’s resurgence stands as a headwind for September consumer confidence index (market f/c: 115.0). Chair Powell and Secretary Yellen will appear before the Senate Banking Committee. The FOMC’s Bullard and Bostic will also speak

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