AUD/USD May Fall if Risk Taking Slows as Cases in New South Wales Swell

Australian Dollar, AUD/USD, Fed, Covid, NSW, Bank of Korea – Talking Points

• Australia’s Covid cases continue to trend higher in NSW state
• The Bank of Korea (BoK) is set to announce a rate decision
• AUD/USD approaches resistance after multi-day price gains

Thursday’s Asia-Pacific Outlook

Asia-Pacific markets appear on track to extend the risk-on rise seen earlier in the week. Stocks extended gains during Wall Street’s Wednesday session, with the benchmark S&P 500 index climbing 0.22%. The anti-risk US Dollar softened in line with risk-taking in equity markets. Meanwhile, the sentiment-sensitive Australian Dollar gained versus most peer currencies.

The Federal Reserve’s Jackson Hole Economic Policy Symposium kicks off tomorrow. Fed Chair Jerome Powell will speak on Friday. Some are expecting the Fed chief to send a signal on asset purchases, while others expect that announcement to come at next month’s FOMC meeting. Nonetheless, traders will be keenly focused on the event given the market-moving potential.

While the Australian Dollar is benefiting from the upbeat market mood, the ongoing virus situation in Australia is a flashing warning sign that the good times may not last. Covid cases hit a new daily record on Wednesday. New South Wales (NSW) saw 919 new infections, according to the latest government data. This is beginning to strain hospital capacity in the Greater Sydney area, prompting calls for policymakers to step up vaccination efforts.

Today’s economic calendar points to the South Korean interest rate decision as the main event for markets. Analysts expect the Bank of Korea to hike its benchmark interest rate by 25 basis points from 0.50% to 0.75%, according to a Bloomberg survey. That would mark the first rate hike from a major central bank in the Asia Pacific region. However, given the rising Covid cases seen in the country, a hold on policy in this meeting would not be all that surprising.

AUD/USD Technical Outlook:

The Australian Dollar is approaching technical barriers that may curb the recent gains versus the US Dollar. AUD/USD is nearing the July low at 0.7289, which provided the base for a Rising Wedge’s support level. A falling 20-day Simple Moving Average (SMA) may also provide pressure just above that level. However, the MACD oscillator is signaling a possible uptick in momentum after the MACD line crossed above the signal line.

AUD/USD Daily Chart

Chart created with TradingView

Australian Dollar TRADING RESOURCES

— Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwateron Twitter