ASIAN MARKET

AUD / USD, AUD / NZD aim higher as Treasury yields climb on reflation theme


AUD / USD, AUD / NZD, Treasury Yields, APAC Trading – Talking Points

  • The pressure on stocks increases as S&P 500 extends lower for the fifth consecutive day
  • Asian stock prices may fall as higher government bond yields warn investors
  • AUD / USD, AUD / NZD could be set to extend recent highs on bullish technical outlook

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The S&P 500 closed in the red on Monday, its fifth consecutive decline marking the longest period of daily losses since the start of 2020. Tech stocks fell sharply with the Nasdaq Composite, which was down 2.46% as higher Treasury yields put pressure on equity valuations. The Dow Jones Industrial Average managed to gain 0.09% while the Russell 2000 index focused on small caps fell 0.69% on the day.

Elsewhere, gold and money price rose with industrial metals like the copper and zinc. The weakest US dollar helped propel precious metals higher as investors continued to strengthen their prospects for a global recovery. XAG /USD edged gold with a 3.18% gain against the yellow metal’s 1.44% rally. WTI Crude oil prices rose more than 2%, with supply issues supporting energy prices.

10 Year Treasury Yield, US Dollar, S&P 500 – 15 Minute Chart

SPX vs Treasury yields vs dxy

Chart created with TradingView

Tuesday’s Asia-Pacific Outlook

APAC shares could follow Wall Street lower as investors brace for a possible price correction to explain the sharp rise in government bond yields. Hong Kong’s Hang Seng Index (HSI) fell 1.06% to start the week on Monday and China’s Shanghai Composite was down 1.45%. Australia ASX also moved lower. Japan Nikkei 225 however managed to climb 0.46%.

While the stock market appears to have temporarily lost favor with investors, risk-sensitive currencies do not. The Australian and New Zealand dollars hit new multi-year highs to start the week, with rising commodity prices suggesting that reflation trade is in full swing. The theme of the economic rebound has indeed strengthened, with Australia officially starting its vaccination program on Monday.

Additionally, the US $ 1.9 trillion Covid relief package is expected to receive a vote in the House this week, which will establish the bill to enter the Senate, and possibly President Joe Biden’s office, d ‘by the end of February. Democrats in the United States now appear poised to push the bill through without GOP backing in the first major test of power since they cemented Democratic control in the House, Senate and White House.

It is also said that President Biden is now set to announce an agenda to start work on a massive infrastructure package next month. If Democrats on Capitol Hill manage to pass the Covid package without GOP backing, they could likely attempt to capitalize on the momentum by swiftly passing any infrastructure bills introduced by the White House.

Tuesday’s economic calendar is rather sparse, but the morning started with data on retail sales outside New Zealand, printing -2.7% on a quarterly basis for the fourth quarter, according to the DailyFX Economic Calendar. China is expected to release January home price data later today. The Japanese market will be closed to celebrate the Emperor’s birthday.

Technical outlook of the dollar AUD / USD

The Australian dollar made a move higher against the US dollar, with AUD / USD breaking above the psychological level of 0.7900 earlier this week. The cross now looks at the 161.8% Fibonacci extension of the January to February movement. Prices appear poised for a possible upward extension as the MACD indicator flashes a bullish signal with its increasing divergence from the signal line. However, the Relative Strength Index (RSI) is in overbought territory, indicating a possible pullback towards consolidation, or perhaps even a downward reversal although the trend remains bullish.

AUD / USD daily chart

audusd graphic

Chart created with TradingView

Technical outlook of the dollar AUD / USD

While not as impressive of a move, the Aussie has rallied to challenge a downtrend line from the August swing high against the New Zealand dollar. AUD / NZD broke above the 78.6% Fibonacci retracement from its January-February move on Monday and momentum appears to be holding up with increasing MACD divergence. RSI remains in neutral territory, just above the 63 mark.

AUD / NZD Daily Chart

AUDNZD chart

Chart created with TradingView

AUD / USD, AUD / NZD TRADING RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

Contact Thomas, use the comments section below or @FxWestwateron Twitter



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