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AUD/USD stays near its cycle highs

Volatility will be minimal today, but this week's US data could bring some interesting movements in the FX market.

Major currency pairings stay near their Friday closing levels on Monday due to light trading conditions. In addition, European and American bond and stock markets will be closed for the New Year’s holiday.

Chinese economy deteriorates

China’s December commercial activity continued to decrease at an accelerated rate, according to figures released early Saturday. In December, the NBS Manufacturing PMI decreased to 47 from 48 in November, while the Non-Manufacturing PMI decreased to 41.6 from 46.7. Both of these figures fell well below experts’ expectations. On Monday, however, Shanghai Composite and Hong Kong’s Hang Seng markets are closed, making it difficult to determine what effect these statistics had on risk sentiment.

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Commenting on the coronavirus situation in China, Chinese President Xi Jinping stated over the weekend, “now, the epidemic prevention and control is entering a new phase, it is still a period of the battle, everyone is persisting and working hard, and the dawn is approaching.”

US dollar to decline amid a shift in sentiment?

Monday’s trading volume for the dollar index and dollar index futures was minimal due to the New Year’s holidays in most of the world. However, in 2022, the Federal Reserve started on one of the most aggressive rate-hiking cycles in history to combat inflationary runaway, pushing the US dollar index 8% higher in the previous year.

Nonetheless, the US dollar has dropped in recent months as statistics revealed that US inflation has likely peaked, which is expected to prompt the Fed to reduce its rate rises. In December, the central bank increased rates by 50 basis points, and an increase of 25 basis points is anticipated in February.

This week, the attention will stay on the Federal Open Market Committee (FOMC) minutes. Thursday’s release of the FOMC minutes will give a full explanation of the monetary policy decision made in December. Aside from that, market players will keep a watch on hints about economic predictions and Jerome Powell’s expected monetary policy action.

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Moreover, Wednesday will see the United States ISM Manufacturing PMI data announcement, which investors eagerly anticipate. According to predictions, the US ISM Manufacturing PMI is predicted to rise to 49.6 from 49.0 in the most recent release. In addition, investors will watch the New Orders Index, which provides clues about future demand in the US economy.

The AUD/USD pair will likely test the 200-day moving average this week (the blue line), seen near 0.6860. If bulls push the pair above it, another leg higher could occur, likely targeting the 0.70 threshold.

AUDUSD daily chart

AUDUSD daily chart, source: author´s analysis, tradingview.com

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