US Dollar and Yen Surge as Stocks Crater. APAC Equities, AUD to Follow?

Australian Dollar, Stock Markets, Wall Street Trade, Asia-Pacific Equities, AUD/USD Analysis – TALKING POINTS

  • S&P 500, Nasdaq Dow Jones sink with AUD, NZD and NOK while anti-risk USD and JPY surged
  • Concern about growing coronavirus cases and derailment of smooth reopening soured sentiment
  • AUD/USD capitulation at early-January swing-high could mark the beginning of a broader pullback

Stock markets suffered their worst day since the selloff in global equities in March. The S&P 500, Dow Jones and Nasdaq indices closed 5.89, 6.90 and 5.27 percent lower, respectively. Foreign exchange markets reflected a similar risk-off tilt, with the session’s biggest losers being the petroleum-linked Norwegian Krone, and the cycle-sensitive Australian and New Zealand Dollars. The anti-risk Japanese Yen and US Dollar surged.

Both crude oil prices and the S&P 500 index broke their respective uptrends which cast a bearish shadow over each one’s future after they failed to clear their own resistance levels. The spread of credit default swaps (CDS) on sub-investment grade corporate debt widened amid concerns that a smooth reopening of the economy may be at risk, leaving borrowers with high levels of debt more vulnerable to default.

Friday’s Asia-Pacific Trading Session

The Japanese Yen’s and US Dollar’s strength will likely extend in Asia at the expense of regional equity markets and growth-oriented commodities like crude oil. The Australian and New Zealand Dollars may also surrender in the face of swelling selling pressure. Spreads on credit default swaps for regional debt may also continue to widen and put a premium on anti-risk assets and a discount on their growth-oriented counterparts.

AUD/USD Analysis

AUD/USD was recently rejected at the upper tier of the 0.6911-0.7018 resistance range, a familiar stalling point dating back to early January. The pair’s inability to clear that six-month swing-high was met with disappointment – as marked by the over two-percent drop below 0.6911. This may be the beginning of a broader pullback, though sellers may encounter some downside friction at 0.6642.

AUD/USD – Daily Chart

AUD/USD chart created using TradingView

— Written by Dimitri Zabelin, Currency Analyst for DailyFX.com

To contact Dimitri, use the comments section below or @ZabelinDimitriTwitter

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