The aussie is the weakest performing major currency on the day
It's been a painful start for the aussie today as it currently trades 0.75% lower against the greenback (and we're not even into European trading yet!). It's been one negative headline after another and put together, the compounding effect is proving a bit too much to keep buyers from holding steady.
Looking at the hourly chart for AUD/USD, the near-term bullish bias was broken earlier in the day as price fell below the 100-hour MA (red line) before testing levels just under the 200-hour MA (blue line) for the past few hours. If buyers fail to defend the latter level, it means that the near-term bias turns more bearish.
Currently, there is additional support in the region from the 50.0 retracement level from the recent swing move higher @ 0.7292. In some ways, the technical levels make for good risk levels that can be defined and limited on both sides of the trade right now - in my view at least.
So, what's dragging the aussie lower right now?
The main headlines that are stealing the show on the day is of course the Turnbull crisis. Leadership challenges and cabinet resignations pose political uncertainty, something never good for the currency involved. But there are many other factors at play right now too.
One of the other key headlines on the day was Australia moving to ban Huawei from its market. Diplomatic relations between the two countries are already in a fragile state during recent months and the move here isn't going to help that. What's worse is that this is an economical move and something that could prompt China respond in due kind - and that presents a big question mark over future economic ties between the two.
Add to the fact that bond yields continue to slide further today, it's not making for a strong case to build a long-term bullish aussie view:
What's more is that the FOMC minutes overnight reaffirmed the Fed's rate hike decision for September and with the RBA still seen nowhere near to hiking rates (economist forecasts continue to be pushed further back), the rate divergence is set to grow wider over the next year.
Not to forget there's still the US-China trade rhetoric brewing in the background and if that starts eating into China's growth figures it will have a negative spillover effect on Australia's economy too.
Looking at the bigger picture for AUD/USD:
The latest retracement higher looks to have stalled at the 1 June low (now turned resistance) @ 0.7373 as the daily candle failed to break above it. If near-term bias turns bearish, there's a good chance that the year's low at 0.7203 will be tested once again.
From the hourly chart, minor support can be seen @ 0.7271 next followed by support around the swing lows last week near 0.7350-55. There's also the 76.4 retracement level @ 0.7345 just below that before the 0.7200 handle (barrier options touted as well) will be tested.
The caveat on any move lower in AUD/USD though will come from the risk ahead of the US midterms. In essence, US politics in general. We have gotten a taste of what it could do over the last few days and I reckon there's going to be more to come the closer we head into the midterms in November.
