AUD/USD, AUD/CHF Downside Risks Remain

AUD/USD Analysis and Talking Points

Fade Rallies in AUD/USD

Short covering in the Aussie has prompted a modest recovery in the currency to reclaim the 0.70 handle. However, as risk sentiment remains fragile, high-beta currencies will continue to struggle and thus the bias remains to fade rallies in AUD/USD. At the same time, in light of reports from the Financial Times that China is looking to consolidate their iron ore imports in order to increase its pricing power over the industry is a negative catalyst for Australia. A reminder that, China is the world’s biggest consumer of iron ore with its absorbing around 70% of global production, with most of it supplied by Australia. Therefore, moves by China to increase their influence over prices will be a concern for Australia given that it is their top export.

Technically, momentum continues to signal risks are tilted to the downside for AUD/USD. Resistance at 0.7050-70 is an area to fade upside, while a close above 0.7135 (pre-CPI level) would suggest that we may have found a short-term bottom. On the downside, support is situated at 0.6840-50.

AUD/USD: Daily Time Frame

Source: Refinitiv

AUD/CHF Downside Risks to Remain

Elsewhere, after yesterday’s surprise rate hike by the SNB, upside in the Swiss Franc is likely to persist across the board and thus I expect further downside in AUD/CHF. Particularly with the SNB now no longer viewing CHF as highly valued and willing to intervene should the Swiss Franc weaken. While already seeing the cross a few big figures lower than pre-announced levels, there is scope for a move towards 0.6400-0.6500. Not to mention the fact that in times of risk aversion, the Swiss Franc will be a good hedge.

AUD/CHF Chart: Weekly Time Frame

Source: Refinitiv