AUD/USD May Rebound as Chinese Lockdowns Ease Ahead of FOMC, BoJ

Australian Dollar, AUD/USD, China, Covid, Commodities, Technical Outlook – Talking Points

• Asia-Pacific markets are looking to gauge market sentiment ahead of an event-heavy week
• Covid lockdowns across China are starting to ease, likely giving metals a boost
• AUD/USD may bounce back this week, but outlook remains bearish on a technical basis

Monday’s Asia-Pacific Outlook

Asia-Pacific markets may open mixed as traders take a cautious stance following last week’s risk-off attack, which sent global equity markets lower and the safe-haven US dollar higher. The US central bank’s rate decision on Wednesday will drive market sentiment. Traders are waiting to see if the Federal Reserve delivers a 75 basis point hike or 100 bps. An updated Summary of Economic Projections (SEP) is also due.

Although the economic outlook for today’s APAC session is light, today’s direction is likely to set the tone in Wednesday’s FOMC. The Bank of England and Bank of Japan are also due to update their policy rates, which may inject further volatility into the foreign exchange markets. The BoE is expected to raise its benchmark rate to 2.25% from 1.75%, while the BoJ is seen keeping its policy stance largely unchanged despite extraordinary Yen weakness.

Bitcoin and other major cryptocurrencies traded lower overnight, suggesting that the risk aversion from last week remains present. A stronger US dollar hit most commodities last week, including copper and iron ore. However, the announced reopening of China’s Chengdu, a megacity in Sichuan province, may lift industrial metals this week. The local government issued a statement outlining reopening steps for public venues and other establishments.

The China-sensitive Australian Dollar may benefit from the easing of restrictions in China, and while the Covid threat from China remains, policymakers may be hesitant to announce major lockdowns as the country’s National Congress approaches. Hong Kong will release unemployment data for August at 08:30 GMT. Monday’s EU session may be light in volume as markets in the UK close for the Queen’s funeral.

AUD/USD Technical Outlook

AUD/USD fell almost 2% last week, with prices briefly sinking to 0.6670, a fresh 2022 low. Prices have trended lower in a given channel range since mid-August. A relief rally may take the currency pair to channel support, but the outlook remains bearish within the channel and below the 50-day Simple Moving Average (SMA).

AUD/USD Daily 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