Home Sports Rolling in the mood of risk Push and Pull AUD

Rolling in the mood of risk Push and Pull AUD



  • The Australian Dollar revolved around the sounds of global machinations
  • China remains the dominant force for risk appetite as Covid-19 lurks
  • US Dollar movements continue to weigh in the direction of AUD

Last week, the Australian dollar rose when markets decided to take risks.

It then consolidated for a week before getting another step over the weekend thanks to increased risk appetite amid improved prospects for Chinese technology companies.

The election in Australia also took place and was won when Labor took office for the first time in nine years. There was zero influence on the markets as there was very little policy difference between the major parties.

The fundamental background remains strong for the Australian economy, but it may be on the brink.

Although Alibaba and Baidu exceeded sales expectations on Friday, China’s persistence in pursuing a zero-case Covid-19 policy means that the outlook for Australia’s largest export market has downgraded its growth forecast.

China has reduced imports of liquefied raw materials natural gas (LNG) by 18% compared to last year to the end of April, according to Refinitiv. Australia is the largest exporter of LNG in the world.

This in itself is not too problematic for Australia as there are many other major LNG customers. The impact of the war in Ukraine means that there are willing buyers of energy in other countries.

But what this underscores is that the world’s second-largest economy is slowing, and other Australian exports risk seeing a slowdown in demand. In particular, iron ore, which saturates China’s demand.

Due to the volumes of iron ore traded between Australia and China, contracts are concluded for the long term. They decrease over time, but short-term fluctuations in prices and demand have little effect on profits.

If the Chinese economy is sluggish for a long time, it could undermine the Australian economy.

While this is being played out, AUD / USD is also at the mercy of US dollars. The Fed seems to have softened its tongue due to hyperaggressive speeding after June and July Federal Open Market Committee meetings (FOMC).

This led to the US dollar breaking away from the 20-year highs seen 2 weeks ago. If this continues, it may send AUD /USD above.

Diagram cpublished in TradingView

— Written by Daniel McCarthy, strategist for DailyFX.com

To contact Daniel, use the comments section below or @DanMcCathyFX on Twittep


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