AUDUSD Dips, Then Rips As China Relations Sour

Summary:

The AUDUSD pair spiked sharply lower overnight as China announced plans to "Indefinitely" suspend economic dialogue with Australia.

The AUDUSD pair spiked sharply lower overnight as China announced plans to “Indefinitely” suspend economic dialogue with Australia.

The news sent the AUDUSD rate plunging in the Asian session to a low of $0.771. Only the support of both the 50-Day and 100-Day Moving Averages ($0.7706 and $0.7704 respectively) stemmed further losses.

The price has since staged a V-shaped recovery, clawing its way back to $0.7754 and offsetting the decline.

Diplomatic relations between Australia and its major trading partner China have steadily deteriorated over the last 3 years. Australia was the first country to block China’s Huawei from participating in its 5G network rollout amid National security concerns.

More recently, Australia’s anti-China rhetoric has increased. With the Department of Home Affairs Secretary Mike Pezzullo clearly referencing the nation when saying:

“Today, as free nations again hear the beating drums and watch worryingly the militarization of issues that we had, until recent years, thought unlikely to be catalysts for war, let us continue to search unceasingly for the chance for peace while bracing again, yet again, for the curse of war,”

The leaders of both nations appear to be taking a tough stance, but in reality, the relationship is one of co-dependency. China is the world’s largest consumer of raw materials. Materials which the Australian economy relies on the export of.

The AUDUSD rate will continue to be reactive to developments, and headlines could create volatile conditions for the AUDUSD trading pair for some time to come.

AUDUSD Technical Outlook

The price remains pinned in a tight range, capped at the top end by an ascending channel at $0.7780. This links the 2021 high of $0.8007 with a series of highs from late April.

Support is seen at the 50-Day and 100 Day moving averages, both sitting just above today $0.7701 low.

An ascending trend at $0.7681, in place from the November $0.6991 low, lends support to the AUDUSD pair on the downside.

For now, the price remains rangebound but typically, narrowing ranges precede a large move. Traders should instead brace for momentum as the price moves outside of the recent range.