The Aussie hasn’t hit the bottom of the cliff yet

The lack of market moving announcements in Asia kept FX price action fairly range bound. Fears about a prolonged slowdown in China and Europe have created a ceiling for risk assets, especially commodity currencies like the Aussie and Kiwi.

AUD/USD spent most of the session attempting to sustain a push above 1.0400. The failure of the pair to hold above this level and break through a support line around 1.0413, underscores some underlying weakness in the Aussie which could see AUD/USD push towards parity. Yet, before turning completely bearish on the technical side, investors should be aware of some key levels around 1.0352 (bottom of daily Ichimoku cloud) and 1.0290 (trend line support from the October 2011 low).

Nevertheless, the commodity based Australian economy means the Aussie is extremely sensitive to fears about a slowdown in global growth, especially stemming from China (Australia’s largest trading partner). This was highlighted overnight with the risk sell-off that pushed AUD/USD through 1.0400. When we combine this fear with a diminishing chance of more QE from the Fed, AUD/USD looks poised for more downside.

Data was pretty light during the session with only the CB China Index coming in at +0.8%m/m, slightly lower than the +1.5%m/m print in January. However, the Fed’s Bullard was on the wires saying the budget deficit in the US is a cloud over the US economy and he warned about the failure of congress to act on it, also caveat about ‘bad things’ possibly happening to US inflation. At the same time, he said gains in US employment may take time, following on from the better than expected US jobless claims data overnight.

Equity markets in Asia had a fairly dismal day, with the Nikkei 225 and the Hang Seng currently down by around 1.05% and 0.96%, respectively. This was after China’s third-largest bank reported a surprise drop in profit and yesterday’s unofficial PMI figure showed the private sector was contraction territory.

Later tonight, we have CPI figures out Canada at 11:00GMT, with the market looking for a headline figure of +0.4%m/m and a core CPI figure of +0.3%m/m. Before this we expect get BBA mortgage approvals for February at 09:30GMT – exp. 37250.

Source: Forex.com

23.03.2012