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Market News If the stock market corrects sharply before the end of the year, there is room for a sharp drop in the Australian dollar against the US dollar

If the stock market corrects sharply before the end of the year, there is room for a sharp drop in the Australian dollar against the US dollar

If the recent prediction of a substantial correction in the stock market before the end of the year comes true, the Australian dollar may fall to a new low in 2021.

LEO
2021-09-09
11826

If the recent prediction of a substantial correction in the stock market before the end of the year comes true, the Australian dollar may fall to a new low in 2021. Despite growing concerns about global economic growth and the sharp drop in iron ore prices, the Australian dollar has shown surprising resilience in recent weeks.


One view of the spread of stock and bond markets is that the global economy may be in a period of sluggish growth and sustained inflation. It has always been difficult for the central bank to deal with "stagflation", and it is more likely to make policy mistakes in this case.

Fed Chairman Powell believes that inflationary pressures are temporary. European Central Bank

President Lagarde may reiterate this view after the European Central Bank policy meeting later on Thursday, but the bond market is not so sure.

Although a series of economic data have been lower than expected, long-term bond yields in the United States and the Eurozone are still rising recently because of inflation concerns. If the major central banks are wrong, or at least considered wrong, this could be a catalyst for the mid-cycle corrections that the stock market should have done long ago.

Morgan Stanley's analysis of G10 foreign exchange options positions found that the market is shorting the U.S. dollar, especially shorting the U.S. dollar against "risk and commodity-related currencies such as the New Zealand dollar, Australian dollar and Norwegian krone." If the stock market does appear. With major corrections, these currencies may be hit the hardest.

If the Australian dollar against the US dollar falls below the 21-day moving average support level of 0.7309, the pressure will turn to the downside. If it falls below the 61.8% Fibonacci retracement level of 0.7248 of the recent 0.7106-0.7477 rally, it will lay the foundation for testing this year's low of 0.7106.

On the upside, the initial resistance is at the 5-day moving average at 0.7402. Breaking the 5-day moving average will see the low at 0.7445 on July 2 and the high at 0.7478 on September 3.


At 11:48 GMT+8, the Australian dollar was quoted at 0.7358 against the US dollar.

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