The Australian dollar has been crashing sharply lower against the greenback as risk-off sentiment remains at heightened levels, with stock markets continuing to plunge amidst a number of market risks prevailing.
Gold and Iron ore prices traditionally have a strong price correlation with the Australian dollar, and both are under. Potentially, this could explain why the AUDUSD pair continues to rise on the foreign exchange market.
The AUDUSD pair also has a reasonable correlation with technology stocks. As both tech-stocks and gold start to falter it is not surprising to see the Australian dollar getting hammered.
Australia is a huge exporter of commodities. And this week’s Chinese export growth data showed a huge decline in the world’s second-biggest economy as exports increased just 3.9 per cent in April from a year earlier.
This news headline sent the Australian dollar crashing broadly. Worryingly, Premier Li Keqiang recently warned of the “grave” situation facing employment in the country and vowed to intensify efforts to stabilise job market disruptions.
Rising COVID-19 cases in China could present a challenge for the Australian, plus new lockdowns and outbreaks in Beijing and Shanghai could see this situation continuing for some time to come.
According to the ActivTrader market sentiment tool some 62 percent of traders are bullish towards the AUDUSD pair, which to me still suggest further AUDUSD losses in the short-term if we apply a contrarian mentality.
In order for the AUDUSD to really build sustained upside momentum we probably need to see a stronger bearish sentiment bias towards the Aussie emerging. As things stand, the bullish sentiment should see the AUDUSD continue to push lower.
AUDUSD Short-Term Technical Analysis
The four-hour time frame shows that the AUDUSD pair has formed a bearish head and shoulders pattern, with the pair already breaking the neckline of the pattern, close to the 0.7000 support area.
Furthermore, the AUDUSD pair is really now in freefall. I would expect the price to test 0.6700 and then start to reverse based on the fact that these patterns can produce minor bounces once played out.
AUDUSD Medium-Term Technical Analysis
Looking at the daily time chart the AUDUSD pair is currently working its way through the lows of last year and has now comfortably found a much lower trading range below the 0.7000 cents levels.
Lower time frame and higher time frame analysis are currently aligning, so we should expect further selling towards the 0.6700 and 0.6500 support zone.