Australian Dollar, New Zealand Dollar, RBA Rate Decision, Riots – TALKING POINTS
- Wall Street buoyancy may spill over into Asia as investors shrug at domestic unrest
- Australian and New Zealand Dollars could rise with APAC stocks despite HK risks
- AUD/USD blew past key resistance and may now challenge multi-week swing-high
Wall Street ended its session on an upbeat note with the S&P 500, Nasdaq and Dow Jones equity indices closing 0.38, 0.66 and 0.36 percent higher, respectively. The risk-on tilt in market mood was also reflected in foreign exchange markets. The commodity-linked Australian and New Zealand Dollars surged against their G10 counterparts while the anti-risk Japanese Yen and US Dollar clocked in losses.
The Hong Kong Dollar was among the assets swimming in red amid domestic turmoil as tensions between the US and China heat up over the former British colony. The yield on the 10-year government bond was up almost five percent along with gold. This could have been due to increased expectations of Fed easing amid growing domestic unrest that market participants appear in large part to be ignoring.
Google searches for “Protest” and “Riots” surged to levels not seen since August 2019, though the market reaction then relative to now was quite different. Last year, protests caused selling pressure to swell in risk-oriented assets while anti-risk currencies like the US Dollar and Japanese Yen rose. Now, the dynamic is reversed in an environment of surreal optimism despite precarious fundamentals.
Tuesday’s Asia Pacific Trading Session
Looking ahead into Asia, Tuesday’s trading session may start off on an upbeat note following the rosy session in Wall Street. This buoyancy may support gains in the cycle-sensitive Australian and New Zealand Dollars along with US equity futures and APAC stocks. Their rise, however, may come at the expense of the anti-risk US Dollar and Japanese Yen.
With a relatively light-data docket ahead, the biggest known event risk to monitor in Asia will be the Reserve Bank of Australia (RBA) rate decision where policymakers are expected to hold the Overnight Cash Rate (OCR) and 3-year yield target at 0.25 percent. You can join live coverage of the event here. Commentary from officials may elicit volatility in AUD crosses. HKD may continue to fall on domestic unrest.
AUD/USD Technical Analysis
AUD/USD blew past former resistance-turned-support at 0.6642 (gold-dotted line) and may now seek to retest one of two key shelves ahead (purple-dotted lines). The first barrier to clear will be the mid-January swing-high at 0.6911. If that obstacle is invalidated, AUD/USD may challenge the multi-month high at 0.7032 where the pair had previously stalled before experiencing a decline it is now attempting to recover from.
AUD/USD – Daily Chart
EUR/USD chart created using TradingView
— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com
To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter