Australian Dollar (AUD) Analysis

• Additional accommodation from the PBoC and positive risk sentiment prop up AUD
• AUD holds up in a week devoid of high impact Aussie data
• IG client sentiment ‘mixed’ despite increasing long-short divergence
• The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

Additional Accommodation from the PBoC and Positive Risk Sentiment Prop up AUD

The People's Bank of China announced that it will free up bank capital held with the central bank in February in the latest effort to support credit markets and the wider economy. The Chinese economy failed to impress in its first full year post Covid lockdowns as increasing protectionism and a global growth slowdown gripped the world’s second largest economy.

Discover why China is so important to Australia and often provides direction to the Aussie dollar via the core-perimeter model.

While the majority of the world still fights off lingering price pressures, China has been battling deflation (year on year price declines) and now looks to jump start the dwindling economy with another round of stimulus measures. The central bank will loosen reserve requirement ratios for banks by 50 basis points (0.5%) after previously having lowered the requirement by 25 basis points in March and September last year.

While this is a step in the right direction it remains to be seen if the latest move will appease investors as the massive Chinese property sector continues to weigh on investor concerns. The Australian dollar responded in a positive fashion but only provided a modest move higher against the dollar thus far.

AUD Holds up in a Week Devoid of High Impact Aussie Data

The Australian dollar continues to hold up around the 200-day simple moving average (SMA) which coincides with the April 2020 level of 0.6580. The recent consolidation has halted a broader decline that ensued as markets heeded the warning of prominent Fed officials around unrealistic rate cut expectations.

The Aussie tends to exhibit a positive relationship with the S&P 500 as the pro-cyclical currency appears propped up by the US index despite Netflix missing earnings estimates after market close yesterday. 0.6680 is the next major level for bulls to overcome and the 0.6580 is the immediate level of support. Tier 1 US data tomorrow and Friday has the potential to add to intra-day volatility as a directional move eludes markets for now.

AUD/USD Daily Chart

Source: TradingView, prepared by Richard Snow

IG Client Sentiment ‘Mixed’ Despite Increasing Long-Short Divergence

Source: TradingView, prepared by Richard Snow

AUD/USD:Retail trader data shows 68.30% of traders are net-long with the ratio of traders long to short at 2.15 to 1.

We typically take a contrarian view to crowd sentiment, and the fact traders are net-long suggests AUD/USDprices may continue to fall.

The combination of current sentiment and recent changes gives us a further mixed AUD/USD trading bias. Read the full IG client sentiment report for analysis on daily and weekly changes in sentiment influencing the ‘mixed’ bias.

https://www.dailyfx.com/news/aud-price-update-aussie-mulling-latest-chinese-stimulus-aud-contained-20240124.html