- Investors seek safety in the dollar as inflation and Chinese lockdowns fuel fears of recession.
- China’s zero COVID policy might lead to new restrictions and slowed growth.
On Monday, the Australian dollar (6A) was pushed lower as the US dollar strengthened on positive inflation data. The dollar traded higher on Monday amid recession concerns as investors sought safety.
“It is turning into a Black Monday in Asia; the R-word (is) now on everyone’s lips” amid “a scramble to reassess Fed hiking expectations, ” Jeffrey Halley, senior market analyst at OANDA, wrote in a client note.
There is also panic after Beijing announced more testing to control a COVID-19 outbreak that started in a bar. On the other hand, Shanghai’s outbreak was tied to a hair salon.
“Anyone trying to pick the bottom in China’s growth and equity markets on the basis that China was ‘one and done on lockdowns is naive,” OANDA’s Halley said.
While the infection rate in China is low by global standards, the country maintains a zero covid policy and has refused to live with the virus as other countries have.
Investors will be paying attention to Australia’s housing sector when the Australian House Price Index is released later in the day. The data measures a change in the selling price of homes in the country’s eight-state capitals. Investors expect a significant drop from 4.7% to 1.4%.
The investing.com sentiment index released earlier today showed the overall exposure was 35.0%. This value shows that only 35% of traders hold long positions in the Aussie, and the majority hold short positions. A value below 30% would indicate oversold conditions, so the Australian dollar might still be pushing lower.
Australian dollar (6A) technical forecast: Bears might pause at 0.7000
The 4-hour chart shows a sharp, bearish move to 0.7000, pushing the price beyond its envelope. This move shows that bears are in control. However, the RSI is in the oversold region, which could be a sign that bears might not be able to sustain the momentum push lower. If 0.7000 acts as support, the price might push back to 0.7125.
However, if bears keep their strength, we might soon see a sustained break of 0.7000 and lower lows.