Strategy
Sell AUD/USD at 0.7240. Stop at 0.7450 and profit target at 0.6800. Trade duration estimated to be around 6 months.
Technical View
After hitting a low of 0.5503 in the middle of March 2020, price has been on a rally. It reached a high of 0.7242 two weeks ago. This is just above the Fibonacci 62% of the decline from 0.8135 to the low of 0.5503. MACD is in the bullish zone but has weakened and there could be a bearish crossover ahead. Stochastic is already in the overbought zone. There is an overhead resistance point at 0.7365, which was a previous resistance point. With momentum indicators near their high and an overhead resistance nearby, price may have trouble continuing its rally.
Fundamental View
Concerns about the slowing US economy due to the impact of the coronavirus pandemic have seen the AUD/USD climbed from a low of 0.5503 to a recent high of 0.7242. We think this factor is well played out by now. Recently in Melbourne, there is a second wave of coronavirus inflections and this is likely to weigh on the Aussie dollar against the US dollar. There is currently no signs that Melbourne second wave of inflection is about to ease.
Aussie dollar has recently benefited from a rally in commodity prices. Gold, Silver, Copper and Iron ore has seen a good price rally and the Aussie dollar has benefited from this trend. With US-China missing a dialogue over the weekend due to scheduling conflict, could there be more tensions ahead? An escalating of tensions is likely to lead to slower China economic growth and lesser demand for commodities from the world second largest economy. China is Australia biggest trading partner and any slowdown in China is likely to weigh on Australia.
Relationship between Australia and China has also taken a turn for the worse. Australia had supported US President Trump in his war against Huawei and China had punished Australia. Canberra’s travel warning, made in response to a new national security law that China imposed on Hong Kong is the latest salvo in a growing row between the two countries. China has imposed 80% tariff on Barley import from Australia and banned beef import from four of Australia’s abattoirs. These actions are likely to weigh on the Aussie.