Is copper providing a clue for the AUDUSD?
Tony Sycamore April 1, 2021 12:55 PM
At the start of the year, US Dollar bulls were few and far between. However, after a strong rally during the first quarter, many forecasters have revised their expectations to cater for continued US dollar strength.
The AUD/USD is but one currency where the US dollar strength has caught the market on the wrong foot. After trading above .8000c six weeks ago. its fall from grace continued today resulting in a retest of the recent low near .7560.
The cause of today’s AUD/USD weakness, softer than expected economic data both here in Australia and China as noted below.
- The February AU trade surplus fell to $7.53bn from $9.6bn in January as imports surged by 5.2%, but exports fell by 1.3%.
- AU Home loans were weaker than expected falling -0.4% in February. Likely a breather after reaching a record high in January.
- China Caixin Manufacturing PMI unexpectedly fell to 50.6 in March 2021 from 50.9 in February, missing market expectations of 51.3. This was the lowest reading since April 2020.
While I agree with revised forecasts for stronger US dollar in 2021 against traditional low yielders such as the JPY and the CHF, I wouldn’t be giving up on a Q2 revival in the AUD/USD for the following reasons.
Technically, the decline in the AUD/USD has unfolded in a corrective/countertrend manner and largely in line with the last update we provided in the AUD/USD here.
The ideal target for the AUD/USD pullback remains wave equality near .7470. However, it is worth noting that following last week’s break of the .7622 low, the minimum requirement for the correction has now been met and should the AUDUSD recover above .7720ish it would warn that a base is in place.
The second reason is the overnight news that copper production in Chile, the world’s largest producer fell in February, to the lowest level in 2 years.
Copper and the AUD/USD are positively correlated. As can be seen on the chart below, the correction in copper is approaching the end of a contracting triangle, which is typically resolved in favour of the bulls.
Source Tradingview. The figures stated areas of the 1st of April 2021. Past performance is not a reliable indicator of future performance. This report does not contain and is not to be taken as containing any financial product advice or financial product recommendation
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