AUD/USD: Teetering on Brink of Collapse into .7086 – .7052

The Australian Dollar is down sharply on Monday as sellers took advantage of a trade thinned a bit by a public holiday.

Although the Aussie has been under pressure recently in reaction to rapidly rising U.S. interest rates, today’s sell-off appears to be related to negative news out of China, which is leading to a global shedding of riskier assets.

At 07:40 GMT, the AUD/USD is trading .7167, down 0.0077 or -1.06%.

The Catalyst:  China

Harsh restrictions in China have begun to spread to Beijing, where more than a dozen buildings have been locked down, as concern grows about the economic damage of the shutdown of Shanghai, Reuters reported.

China’s blue-chip CSI 300 index fell to its lowest since June 2020 and investors have so far been underwhelmed by policy support for the fledgling economy.

The middle of China’s on shore currency trading band was fixed at its lowest level in eight months on Monday, seen as an official nod for the yuan’s recent slide and it was quickly sold to a one-year low of 6.5225 per dollar.

Daily Swing Chart Technical Analysis

The main trend is down according to the daily swing chart. A trade through the March 15 main bottom at .7165 reaffirmed the downtrend. A move through .7458 will change the main trend to up.

The AUD/USD is also trading on the weak side of a long-term retracement zone at .7429 to .7538, helping to feed the sell-off.

Daily Swing Chart Technical Forecast

The direction of the AUD/USD into the close on Monday is likely to be determined by trader reaction to .7165.

Bearish Scenario

Sellers briefly poked through the support at .7165, stopping at .7150, before new buyers stopped the slide.

If they return later in the session, they could try to drive through .7165 with main bottoms at .7086 and .7052 the next targets.

Bullish Scenario

Holding above .7165 indicates a number of things including the emergence of aggressive bottom-pickers. However, we can’t anticipate a rapid turnaround unless the AUD/USD turns higher for the session. So let’s call Friday’s close at .7244 the key resistance.