By :David Scutt, Market Analyst
- AUD/USD closes at multi-month lows as US yields hit multi-month highs
- USD/CHF delivers key bearish reversal signal, pointing to downside risks
Overview
AUD/USD continues to wallow at multi-month lows, hindered by the relentless rise in US Treasury yields and disappointment towards China’s latest stimulus measures. However, USD/CHF has managed to break the stranglehold of higher US rates, delivering a notable sell signal to start the trading week.
Market drivers for AUD, CHF
The chart below looks at the rolling 20-day correlation between AUD/USD on the left and USD/CHF on the right. The top three panes are identical being end-2025 Fed rate cut pricing based on futures in black with two and 10-year US Treasury yields in blue and red respectively.
For AUD/USD, the green line represents USD/CNH daily movements with COMEX copper futures in purple. For USD/CHF, EUR/USD and USD/NOK are shown in green and purple respectively.
It’s obvious that over the past month that AUD/USD remains a proxy for the US rates outlook and China sentiment, whereas the vice-like grip US rates had on USD/CHF previously has weakened noticeably.
Source: TradingView
Click the website link below to get our exclusive Guide to AUD/USD trading in Q4 2024.
https://www.cityindex.com/en-au/market-outlooks-2024/Q4-aud-usd-outlook/
AUD/USD nears key support
Source: TradingView
AUD/USD fell to the lowest level since August 15 on Monday, continuing to trend lower as US Treasury yields pushed higher. The latest move has seen the pair move to within touching distance of .6569, a level that acted as both support and resistance earlier this year. That’s the first downside reference level for traders pondering potential setups. If that level were to give way, focus will then turn to a potential retest of long-running uptrend support that was established during the initial pandemic plunge of early 2020.
On the topside, minor resistance is located at .6615 with the 200-day moving average located nearby at .6629. A reversal through those levels would open the door for a potential push towards .6660 and .6692, both minor level that acted as support and resistance earlier this month.
For now, RSI (14) and MACD continue to provide bearish signals on price momentum, making the inclination to continue selling rallies and breaks rather than attempting to buy dips.
While obvious the Aussie remains a play on the US interest rate outlook and sentiment towards China based on the correlation analysis above, traders are reminded Australia’s key Q3 consumer price inflation report is released on Wednesday. This report is realistically the only domestic release left this year that could meaningfully shift RBA rate cut pricing, placing increased emphasis on the detail.
A comprehensive preview will be released Tuesday afternoon in Asia.
USD/CHF goes its own way
USD/CHF was essentially a play on the US rate outlook up until recently. However, over the past fortnight the correlation with US yields has weakened noticeably, replaced by tighter relationships with other European currencies against the dollar.
You can see the shift visually in the price action with the USD/CHF rally stalling despite the continued lift in Treasury yields. That suggests traders may want to put more weight on price signals that US interest rate movements when assessing potential USD/CHF setups.
USD/CHF delivered a key bearish reversal on Monday, rejected again at uptrend resistance dating back to early October. The price has now broken out of the rising wedge it was trading in over recent weeks. With RSI (14) trending marginally lower and MACD on the cusp of confirming the bearish momentum signal, selling rallies is preferred to buying dips.
On the downside, levels to watch include .8617 and .8530, the latter the intersection of former horizontal resistance and the 50-day moving average.
Above, a push beyond .8700 would void the bearish bias, opening the door for a run towards .8730 which provided support and resistance on numerus occasions earlier this year.
– Written by David Scutt
Follow David on Twitter @scutty
From time to time, StoneX Financial Pty Ltd (“we”, “our”) website may contain links to other sites and/or resources provided by third parties. These links and/or resources are provided for your information only and we have no control over the contents of those materials, and in no way endorse their content. Any analysis, opinion, commentary or research-based material on our website is for information and educational purposes only and is not, in any circumstances, intended to be an offer, recommendation or solicitation to buy or sell. You should always seek independent advice as to your suitability to speculate in any related markets and your ability to assume the associated risks, if you are at all unsure. No representation or warranty is made, express or implied, that the materials on our website are complete or accurate. We are not under any obligation to update any such material.
As such, we (and/or our associated companies) will not be responsible or liable for any loss or damage incurred by you or any third party arising out of, or in connection with, any use of the information on our website (other than with regards to any duty or liability that we are unable to limit or exclude by law or under the applicable regulatory system) and any such liability is hereby expressly disclaimed.